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Alstom Faces Challenges as Cash Flow Forecast Disappoints

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Shares of Alstom (ALO) took a significant hit on Thursday, dropping 37% at one point, following the company’s downward revision of its free cash flow forecast. The France-based manufacturer of high-speed trains cited project delays and inventory build-up as the primary reasons for the revision.

In a statement released late Wednesday, the Paris-listed group revealed a cash outflow of €1.15 billion ($1.21 billion) in the first half of the fiscal year. Furthermore, Alstom expects negative free cash flow ranging from €500 million to €750 million for the entire year. This revised forecast is due in part to increased production to fulfill new orders and delays in completing the U.K. Aventra electric train project.

Investors and analysts were disappointed by Alstom’s revised forecast, as the company had previously indicated a “significantly positive” free cash flow generation.

Deutsche Bank analyst Gael de-Bray expressed concerns in a research note, stating that this revision significantly impacts management’s credibility. As a result, de-Bray reduced his estimates for Alstom’s earnings per share by an average of 8% for 2023-2025.

Furthermore, de-Bray predicts that Alstom will end the 2023/2024 fiscal year with a net debt of €3 billion, €1 billion higher than previously anticipated. With the investment grade rating now at risk, de-Bray suggests that a capital increase may become increasingly likely. Consequently, the target price for Alstom has been revised down from €30 to €23.

Following the news, Alstom shares were trading at €13.77, experiencing a 36% decrease, and the company’s market value stood at €5.29 billion.

This decline in Alstom stock had a negative impact on the CAC 40 (FR:PX1) in Paris, which remained flat for the day. Similarly, the DAX (DX:DAX) in Frankfurt also saw no change by lunchtime in Europe.

London’s FTSE 100 Closes Higher

Grocer Tesco and cigarette maker Imperial Brands drive market gains

London’s FTSE 100 UK:UKX closed 0.5% higher today, buoyed by positive results from Tesco and news of a share buyback from Imperial Brands. Tesco, one of the largest supermarket chains in the UK, saw a 4.03% increase in its stock price following the previous day’s well-received financial report. Meanwhile, Imperial Brands experienced a rise of approximately 3% after announcing its plans for a £1.1 billion share buyback in fiscal 2024.

Richard Hunter, the head of markets at Interactive Investor, attributed this success to the strong cash generation capabilities of Imperial Brands. He also highlighted the company’s growing market share in its five priority markets. Despite Brexit uncertainties, the weaker value of the British pound has provided an additional boost to the company’s revenues.

However, Metro Bank witnessed a significant downturn in its share price, plunging by 24% today. Reports claiming that the challenger bank was seeking to raise up to £600 million to strengthen its balance sheet contributed to this decline. Metro Bank responded by acknowledging that it was exploring various options, such as issuing new shares and debt, refinancing, and asset sales. Nevertheless, no definitive decisions have been made as of yet.

Russ Mould, the investment director at AJ Bell, raised concerns about Metro Bank’s future prospects, questioning whether the era of challenger banks was coming to an end. Regulators recently dismissed Metro Bank’s request to lower its capital requirements, a move that would have supported its mortgage business. Consequently, the bank finds itself in a precarious position, with its stock hitting a record low.

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