Paris-listed Alten is part of the top 10 stocks for The Edge Singapore’s Global Virtual Portfolio for this year.
The company reported its FY2024 results on Feb 20, and similar to the market reaction for Audinate Group (see Issue 1177), its share price exceeded the intrinsic value that we ascribed to the company. Alten’s share price reached a high of EUR100.10 ($140) on Feb 21 and traded at EUR90.9 as of Feb 21’s close. Our fair value for the company previously was EUR95.9 and our revised valuation for Alten is EUR97.7. Chart 1 and Chart 2 illustrate the updated valuation overview and its current price to intrinsic value, respectively.
To recap, Alten is a global technology consulting company that specialises in engineering and information technology (IT) services. Roughly 70% of the company’s business activity comprises the engineering segment, while the remaining 30% of activity is dedicated to IT services. The case for investing in Alten is that it is cheap and undervalued based on its financials. Qualitatively, Alten is a leading technological partner for major industrial clients and has developed a complementary and historical positioning in IT services to provide multisectoral solutions to clients, which enables it to cover the entire product development cycle, implying a strong footprint along the value chain.
Alten’s share price surged after the company’s results indicated that its business was stabilising, along with analyst upgrades due to stable operating margins. The concern was with a slowdown, primarily in Europe, such as in the automotive and civil aeronautics sectors. However, lower interest rates and a potentially favourable geopolitical environment over the upcoming financial periods are expected to offset the slowdown in economic activity. For FY2024, revenue was up 1.8% y-o-y, with French revenue growing 4.8% and international revenue by 0.4%. The organic growth over the same period, however, was –0.2%. Although the operating income and net income were down 13.4% and 20.1%, respectively, over the one-year period, free cash flow improved tremendously by 81.4%.
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Moving forward, Alten plans to grow its business by focusing on its international revenue sources, which have grown from 56.8% to 67.2%. Some initiatives include internationalising its commercial organisation to better capitalise on the top 120 of its global clients, who represent 78% of its revenue. Further, to sustain its international development, Alten markets, promotes, and develops its near-shore and offshore delivery centres, which help to win markets against the largest players through its wider offering. Also, given its net cash position, Alten is able to accelerate its targeted acquisition growth, driven by a healthy financial structure.
For now, we will keep Alten in our portfolio until we find a more undervalued stock to replace it. The goal of the global virtual portfolio this year is to actively beat passive investing. In other words, we will attempt to beat the comparable benchmark index where each stock is listed, thus justifying why all 10 individual stocks are listed in different global exchanges. We would also like to reiterate that once a stock ceases to be undervalued, it should be replaced, if possible, due to the opportunity cost of money and investment returns.
Disclaimer: This article is for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy or sell stocks, including the stocks mentioned herein. This article does not take into account an investor’s particular financial situation, investment objectives, investment horizon, risk profile, risk tolerance and preferences. Any personal investments should be done at the investor's own discretion and/or after consulting licensed investment professionals, at their own risk.
