Why Alstom Can't Get Out of Trouble

Alstom is a global leader. Alstom is a pure-play. Alstom invented the TGV. Alstom is at the heart of eco-friendly mobility, and Alstom keeps winning contracts. But Alstom can't get out of trouble. The stock has lost over half its value this year. It has been cut to a quarter of its value in six years. How can a company with so many strengths turn into a shareholder trap? On Monday, November 2, Alstom shares lost 26% after the company slashed its targets. On the previous April 17, the stock had already plunged 27% for the same reason. Setting aside earnings releases, the group's communications report major contract wins in various parts of the world. The order book confirms it: €104bn at the end of the fiscal year that closed last March, compared with annual revenue of €19.2bn. That should provide plenty of visibility. Its order book is impressive, but does not say how much Alstom will earn on each project, or when it will collect the payments. Designing and manufacturing trains ties up significant capital over long cycles, with risks of delays and cost overruns. That is what makes this type of business difficult to manage: margins are slim and leave little room for setbacks. Yet Alstom has accumulated setbacks on the Coradia Max regional train program, which has been delayed and is weighing heavily on the company's finances. The program's gross margin has even turned negative, CFO Bernard-Pierre Delpit acknowledged at the start of the week. It will take time to put the project back on track. The European rail sector is no easy ride. With the exception of CAF, the other players are significantly underperforming the index average Alstom is not an agile business. It is not a services provider that can quickly adapt its strategy or redirect its financial flows in response to a crisis. Its capital intensity complicates everything and makes project planning, monitoring and execution particularly critical. There is, however, a trade-off: the business is difficult to compete with, because replicating it requires massive investments and a lot of time. Alstom is therefore relatively protected from external threats. But not from internal ones. Recent group history has been marked by profitability problems linked to complex programs. It has also been shaped by the combination with rival Bombardier Transportation. As with any such transaction, integration takes time, especially, as we now understand, in this type of business. The deal enabled Alstom to achieve greater scale and strengthen its presence in North America, but so far it has not delivered the expected impact on the group's results, to borrow the phrase already repeated here several times. Alstom therefore remains in recovery. In seven months on the job, new chief executive Martin Sion has already had to make two profit warnings. Shareholders had indeed hoped for a different start. And it may not be over: we understand from a well-informed source that a third warning cannot be ruled out in the coming months, as a presentation day on the outlines and ambitions of the future Alstom approaches in Q2 2027. It's a classic move and sometimes a necessary evil: a new executive settles the past and loads up the entry balance sheet to start again on a sound footing. Alstom's balance sheet is already heavily burdened, but there is still room.