Alstom derails in Paris, estimates below expectations and withdrawal of guidance

(Il Sole 24 Ore Radiocor) - Alstom derailed on the Paris Stock Exchange on disappointing preliminary estimates for the 2025-26 financial year and the withdrawal of three-year cash flow and margin forecasts for 2026-27. The train and rail infrastructure manufacturer's stock lost more than 33 per cent at the opening of the markets (on Friday, 17 April), and then continued to trail the Cac 40 index. On the eve of the close of trading on Thursday 16 April, Alstom announced that it expected cash outflows of around EUR 1.5 billion for the first half of the financial year that began on 1 April, due to seasonality effects. "As a result, the cumulative free cash flow target of EUR 1.5 billion in the three-year period between the financial year 2024-25 and 2026-27 will no longer be maintained. The medium-term target of an adjusted operating margin of between 8 per cent and 10 per cent will not be achieved by the 2026-2027 financial year,' emphasised Alstom, which still expects a positive FCF by the end of this year. Alstom also reported that it had achieved an adjusted operating margin "around 6%" for the year ending March, according to preliminary results, compared to the target of 7%. "Some major rolling stock projects have proceeded more slowly than expected, weighing on margins and short-term cash flow," the group explained. Preliminary estimates also include revenues of EUR 19.2 billion (+4% reported and +7% organic) and a negative free cash flow of EUR 330 million versus a positive figure of EUR 502 million in 2024-25, 'due to headwinds from orders on working capital'. Orders received increased to EUR 27.6bn (+39% and +42% respectively).

"In my new role as Group CEO, I am convinced that Alstom is well positioned, with an order book of EUR 100 billion and a favourable rail market. However, although the Group recorded a strong order inflow and achieved its liquidity targets in FY2025/26, profitability was below expectations. In an industry where tight planning and disciplined execution are essential, some large rolling stock projects proceeded more slowly than expected, affecting margins and short-term liquidity. We are therefore taking immediate action to stabilise performance, while preparing deeper operational changes to restore sustainable execution, cash generation and profitable growth,' said CEO Martin Sion, who took office on 1 April.

"Although investors had already expressed concern following the pre-market message at the beginning of the month, fearing that new CEO Martin Sion might withdraw his forecasts, the preliminary outlook is worse than expected, particularly with regard to first-half free cash flow," Citi noted in a note to investors. As a result, Citi is lowering its expectations, assuming that Alstom will post free cash flow of EUR700m in FY2029 instead of FY2027, and reducing its price target to EUR28 from EUR31. JP Morgan noted that some market participants had anticipated this announcement, as evidenced by the large volume of short selling on the stock.

Analysts at Deutsche Bank lowered their share price target from EUR 31 to EUR 23 following these announcements and downgraded their recommendation from 'buy' to 'hold'. While continuing to believe in Alstom's long-term value creation potential, the bank said that this warning 'tests investors' patience'. "We now expect Alstom's new CEO Martin Sion to present his plan to restore more rigorous project execution and better cash generation," Deutsche Bank added.