This major capital equipment manufacturer looks good value relative to peers and ticks a lot of the right environmental boxes. With a robust balance sheet they offer excellent visibility with a backlog stretching out 25 months. Alstom could also be a big beneficiary of the weak euro, although this may take longer to play out.
THE BUSINESS
Alstom is a major capital equipment manufacturer and turnkey project manager specializing in the manufacture and supply of transport and energy infrastructure. The Group designs, supply and maintain a range of high technology products used for power generation sector and industrial markets, including turbines, alternators and boilers. They also produce hydroelectric equipment, combined-cycle power plants and environmental control systems. In addition, Alstom SA supplies equipment and infrastructure for the rail transport sector, notably rolling stock, signaling and maintenance systems, locomotives and high-speed tilting trains, among others.
BUSINESS SEGMENT/ DIVISIONAL BREAKDOWN
Power (71% sales)
• Turnkey power contractor delivering everything from whole power stations to transmission projects. Biggest strengths are in combined cycle gas plant (gas turbines), coal (steam turbines) and in boilers. Turbine technology transfers to other markets like Nuclear, hydroelectric and wind power – making quite a diversified offering. 10% of the business is renewable technology. Return on sales 10.6% (9.6%) European exposure 43%. Finishing integration of Areva Transmission & distribution business in conjunction with Schneider. This will expand transmission business. Orders recovering in H2, but down c.40% in all 3 areas: renewable, thermal services & thermal systems.
Transport (29%)
• Manufacturer of locomotives and carriages for intercity, metro, tramways (65%) and signaling (20%) and infrastructure and services (15%). ROS 7.2% (7.0%), 68% Europe. Demand remains better than Power. Orders down 30% in year but stabilized. Strategic partnership set up in Russia to open large new potential market Geographic breakdown (by order intake). 62% Europe, 13% Asia, 45% Africa, 7% S. America, 13% N.America.
PEER GROUP
- ABB (NYSE:ABB) @SF18.98 PE Dec 2011 13.6x Mkt cap SF43bn
- Schneider (EPA:SU) @€82 PE Dec 2011 12x Mkt cap €22bn
- Siemens (ETR:SIE) @€74 PE Sept 2011 12.1x Mkt cap €64bn
- GE (NYSE:GE) @$14 PE Dec 2011 10.9x Mkt cap $154bn
SOME TRADE THOUGHTS
• Cheap (PER 9.6x March 2011) compared to other Power industry peers (see above).
• Swings in advances not as big as feared - €1bn decline in advances to €6.4bn, but cash flow neutral due to improved profitability.
• Book to…
