Nomura Securities Starts Alstom SA (ALSMY) at Neutral

Nomura Securities initiates coverage on Alstom SA (OTC: ALSMY) (ALO FP) with a Neutral.

Analyst Daniel Cunliffe comments "We initiate on the stock with a Reduce (EUR 25 PT). In short, we believe that this is a structural sell. With the rapid mix shift in group orders from emerging markets having risen from 35% to >65% over the past three years, we argue that the FCF profile of the group may fundamentally change, something which the market is currently missing. Whilst guidance and consensus indicates a cash flow recovery over the next three years, we argue that Alstom’s FCF could materially disappoint at a 30-40% conversion rate versus 80% expected by 2014 (the significant shift to emerging markets has resulted in longer receivable days but broadly unchanged payable days). This structural shift in cash flow would have three major negative implications for the group in our view: 1) zero debt repayment over the next three years despite an up-cycle in volume and margins; 2) Assuming that the current cash flow conversion cycle does not further deteriorate, group net debt would stand at EUR 2.7bn by 2014, just at the time when the cycle potentially peaks versus a EUR 1.6bn net cash position at the peak of the last earnings cycle in 2009; and 3) ROE would remain flat at c.18%, despite improving sales and margins, given the structural increases in working capital."

For an analyst ratings summary and ratings history on Alstom SA click here. For more ratings news on Alstom SA click here.

Shares of Alstom SA closed at $3.65 yesterday.

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