Paris-listed Alten is a mid-cap technology consulting company. Alten specialises in engineering and IT services and has a global presence in over 30 countries. The company describes itself as 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. This enables it to cover the entire product development cycle on technological projects, implying a significant footprint along the value chain.
The thesis for investing in Alten is that it is cheap and undervalued based on its financials.
The revenue business mix is almost equally divided between all sectors in which Alten has a presence. This can be good for diversification purposes but potentially not as attractive as some sectors tend to outperform during the normal course of the business cycle.
Regardless, we think this type of business is much easier to assess whether it is undervalued, simply because the overall fluctuation of very diversified businesses tends to be lesser than niche-focused businesses. Specifically, fewer fluctuations mean less volatile financial growth, both negative and positive. Comparing this against the share price growth of Alten, which has suffered over the past year — down over 40% for the period, we think that the business is cheap because the market is focusing on the worst-performing sector of the diversified business, not the overall business.
Alten derives most of its revenue from the automotive industry. Some issues that could affect the sector’s cyclical slowdown are the decrease in volume, particularly for electric vehicles (EV), and changes in investment strategies due to policy and regulations by EV players. However, this could potentially be offset by accelerating decarbonisation, new systems of driving assistance, and investment in batteries and the hydrogen sector.
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Another sector that contributes significantly is the aeronautics and space sector. Improvements in supply chain efficiency and production equipment, along with decarbonisation, are tailwinds for the sector. At the same time, a cyclical slowdown related to the postponement of many projects from many players is a strong headwind. There are also many opportunities for sectors in which Alten has a presence, such as the finance, life sciences, and telecoms industries, that can potentially contribute to business growth.
The point of all this is to recognise that to be successful in each industry; it is important that the clients are at the forefront or well-recognised names in the sector or industry. Alten has this, where some big names include BNP Paribas, Pfizer, Airbus, Siemens, Volkswagen, Accor Hotels, Telefonica, ASML and many more. This reduces the likelihood of project failures, resulting in more consistent overall financial and business performance.
Something to note over the years for Alten is that the revenue mix is slowly shifting towards international sources as compared to domestic sources from France. In 2018, around 54% was derived internationally — and as of 2024, the figure grew to over 67%. This implies that the business is diversifying its revenue sources geographically and improving its global footprint, which should ultimate ly aid in the overall growth of the business through a more diverse and wider addressa ble market. Alten’s management has recog nised and addressed this by stating its plans to sustain its international development. Some initiatives include globalising its commercial and technical organisations and capitalising on the top 100 global customer market, such as being more present in the software and ar tificial intelligence sector.
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In Alten’s 1HFY2024 results, its organic growth grew 0.9% y-o-y. Revenue, operating profit and net profits grew 2.9%, 2.2% and 6.4%, respectively, over the same period. Also, free cash flow turned positive from the previous comparable period. The company is fairly profitable, with a return on equity and return on assets of 11.9% and 6.9%, respectively. Margins are also commendable for a diversified company — with ebitda, operating and net profit margins at 9.8%, 7.6% and 5.6%, respectively.
Alten’s financial health is solid, with good liquidity represented by a current ratio of 1.6 times and great solvency reflected by its net debt-to-equity ratio of just 2% and an interest cover of close to 30 times. In terms of relative valuation, Alten trades cheaply and is attractive compared to global peers by trading at a steep 38%, 41% and 65% discount for its forward P/E, EV/Ebitda and P/B ratio, respectively.
Sentiment-wise, there are seven “buy” calls, two “hold” calls and two “sell” calls for Alten from analysts with an average target price of over 25% above its current trading price of EUR80.4 ($113.43). Based on our in-house valuations (see Charts 1a and 1b), we think the fair value for the company is EUR95.9.
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.
