Europe Markets: Alstom shares plunge more than a third after high-speed train builder warns on cash flow

Alstom shares
ALO,
-37.58%

came off the rails Thursday, at one point sliding 37%, after the France-based maker of high-speed trains cut its free cash flow forecast amid project delays and inventory build-up.

The Paris-listed group said in a statement late Wednesday that it saw a €1.15 billion ($1.21 billion) cash outflow in the first half of its fiscal year, and it expects negative free cash flow of €500 million to €750 million this year, partly as a result of boosting production to meet new orders and from delays in completing the U.K. Aventra electric train project.

Alstom had previously guided for “significantly positive” free cash flow generation, and consequently investors and analysts were not impressed.

“We see this as a major blow to management’s credibility,” Deutsche Bank analyst Gael de-Bray said in a research note in which he cut his estimates for Alstom earnings per share by 8% on average over 2023-25.

Gael de-Bray expects Alstom to finish its 2023/24 fiscal year with a net debt of €3bn, around €1bn higher than previously anticipated. “The group’s investment grade rating now looks at risk, with a capital increase becoming increasingly likely. This leads us to cut our target price to €23 from €30 previously,” he added.

Alstom shares were later trading down about 36% to €13.77, valuing the company at €5.29 billion.

The plunge in Alstom stock weighed on the CAC 40
FR:PX1
in Paris, which by lunchtime in Europe was flat on the day, as was the DAX
DX:DAX
in Frankfurt.

London’s FTSE 100
UK:UKX
gained 0.5% as grocer Tesco
TSCO,
+3.58%

continued to benefit from the previous day’s well-received results, and cigarette maker Imperial Brands
IMB,
+3.92%

was lifted about 3% by news it would launch a £1.1 billion ($1.33 billion) share buyback for fiscal 2024.

“The extremely cash generative nature of the business is still being underpinned by growth in Imperial’s aggregate market share in its five priority markets,” said Richard Hunter, head of markets at Interactive Investor. “Previous guidance for the full year remains intact, with the weakness of sterling providing a small additional tailwind to revenues.”

Another notable mover in the London market was Metro Bank
MTRO,
-25.74%
.
Shares in the U.K. challenger bank plunged 24% on reports it was looking to raise up to £600 million to shore up its balance sheet. The company responded by saying it was looking at its options including issuing new shares and debt, refinancing and asset sales, but no decision had been made.

“Is the age of the challenger bank over?” said Russ Mould, investment director at AJ Bell. “Media speculation suggested Metro Bank urgently needs to raise more cash, after regulators dismissed a request last month to lower the amount of capital it needed to hold to underpin its mortgage business. Metro as an individual institution is certainly being pushed into existential territory with the shares now at all-time lows,” he added.

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