AOMFF - Alstom: Potential For A Positive Surprise

2024-05-03 18:41:25 ET

Summary

• Alstom presents an interesting buying opportunity assuming a capital raise will not be needed.
• The market has overreacted to temporary negative working capital fluctuations, and a new equity issue may not be necessary.
• Alstom has strong long-term fundamentals supported by the trend of making transport more environmentally friendly.

Investment thesis

Alstom SA ( ALSMY ), a rolling stock producer with global reach, looks like an interesting buy opportunity with a non-linear return profile - specifically before the earnings call on the 10th of May. I think, there is a high chance that the potentially dilutive capital raise will not go through which shall catapult the stock price. If not, with the dilution more than priced in, the stock still has strong long-term fundamentals.

In my opinion, the market has overreacted to the temporary negative working cap fluctuations revealed in October/November 2023 and a new equity issue is not that certain. Assuming normalization of working capital requirements once issues on Amtrak and Aventra contracts are sorted out and given the recently announced sale of the North American signaling business for EUR 600m , there should be enough breathing room in the balance sheet not to go further with an equity raise....

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