Anticipated Project Reinitiations In Europe And US Automotive And Aerospace Sectors Will Improve Future Prospects

Key Takeaways

• Anticipated project reinitiations and sector rebounds in automotive and aerospace may boost revenue growth and future top-line stability.
  
• Successful acquisitions and offshore project accelerations could enhance cost control, operational efficiency, and long-term profitability.
  
• Project cancellations and economic challenges across key regions impact Alten's revenue growth, operational profitability, and global earnings diversification efforts.

Catalysts

Operates as an engineering and technology consultancy company in France, North America, Germany, Scandinavia, Benelux, Iberian, Spain, Italy, the United Kingdom, the Asia-Pacific, Switzerland, Eastern Europe, and internationally.

• The anticipated project reinitiations in the automotive and aerospace sectors, particularly in Europe and the U.S., could lead to improved revenue growth once these postponed projects commence, impacting Alten’s future top-line.
  
• Successful acquisitions, as evidenced by headcount increases from acquisitions, indicate potential revenue synergies and long-term earnings growth as these acquisitions are integrated and start contributing to the bottom line.
  
• An expected rebound in certain sectors such as Defense and Energy due to geopolitical and substitution factors could improve net margins and operational profitability as these high-margin sectors grow.
  
• Offshore project accelerations, particularly in the automotive sector, enable cost control and operational efficiencies, potentially improving net margins and stabilizing earnings by moving work to lower-cost regions.
  
• The economic stabilization and potential minor growth in regions like North America, Mexico, and Asia-Pacific could enhance organic growth and revenue recovery through diversification and expanding market presence.

Alten Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alten's revenue will grow by 3.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.5% today to 6.4% in 3 years time.
• Analysts expect earnings to reach €293.5 million (and earnings per share of €8.57) by about February 2028, up from €186.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.0x on those 2028 earnings, down from 18.1x today. This future PE is lower than the current PE for the GB IT industry at 17.0x.
• Analysts expect the number of shares outstanding to grow by 0.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.78%, as per the Simply Wall St company report.

Alten Future Earnings Per Share Growth

Risks

• The postponement and cancellation of key projects in both the automotive and aerospace sectors, especially in unexpected last-minute situations, have negatively impacted the company's revenue. This uncertainty can lead to inconsistent cash flow management and affect earnings stability.
  
• The erosion of growth, particularly outside of France and in significant markets like Germany and the UK, highlights challenges in sustaining revenue growth, thereby putting pressure on net margins and overall profitability.
  
• Alten is experiencing a decline in operational profitability due to an increase in inter-contract periods and higher SG&A expenses, which compresses the net margins despite the implementation of a cost reduction plan.
  
• The lack of visibility and forecasted negative organic growth into 2025, compounded by clients managing cash flow and reducing costs, signals potential challenges in maintaining steady revenue streams.
  
• The overall economic context in Europe is unfavorable, and with sluggish growth in Asia and unclear rebound in the U.S., there's a risk of underperformance in these regions, affecting Alten's global earnings and revenue diversification plans.

Valuation

• The analysts have a consensus price target of €100.125 for Alten based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €134.0, and the most bearish reporting a price target of just €74.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.6 billion, earnings will come to €293.5 million, and it would be trading on a PE ratio of 15.0x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of €97.15, the analyst price target of €100.12 is 3.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.