Rather than pay dividends, this high-profile French company is ploughing profits into expansion.
Rodney Hobson is an experienced financial writer and commentator who has held senior editorial positions on publications and websites in the UK and Asia, including Business News Editor on The Times and Editor of Shares magazine. He speaks at investment shows, including the London Investor Show, and on cruise ships. His investment books include Shares Made Simple, the best-selling beginner's guide to the stock market. He is qualified as a representative under the Financial Services Act.
Rail travel is widely seen as a greener method of transport than most alternatives. Among the greener train manufacturers and rail equipment providers is French company Alstom (EURONEXT:ALO).
With concern growing over global warming, road traffic congestion increasing and air travel taking a bashing during continuing lockdowns, rail offers a fast and acceptable means of getting from A to B for short and medium length travel. The top players have exciting opportunities.
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Alstom is best known as a manufacturer of rolling stock, but it does also offer fully integrated services including maintenance, signalling and other equipment. Its key market is Europe, but it does have operations in North America, Asia and Africa.
Among its best sellers is the Coradia Stream single deck electric trains that can travel at up to 160 kilometres an hour. The beauty of these trains is that they can be easily adapted, for instance taking out seats for short routes and adding more for longer journeys, putting in bike racks and food dispensers and providing multimedia centres.
Source: interactive investor. Past performance is not a guide to future performance
Alstom has made a great start to the year, signing large contracts to supply trains and equipment that will help to keep its workshops busy for several years. Most recently it won a deal to supply 20 of the latest generation of Coradia Stream trains, to be delivered from June 2023, to the Lombardy regional rail service in Italy for a total €125 million. Earlier models are already in commercial service in ten Italian regions, including 54 already operating in Lombardy. Clearly the region’s railway likes the model.
A few days earlier, Denmark’s state-owned rail operator DSB agreed to buy 100 Coradia Stream trains worth nearly €3 billion to replace aging diesel-powered trains that have been plagued with technical problems. Alstom’s trains are due to be delivered over five years up to 2030 and the deal includes servicing and maintenance. DBS plans to buy another 50 Coradia Stream in due course.
Other recent contract signings have come in Spain, Mumbai and Chicago.
One drawback of Alstom is that it does not pay a dividend, preferring instead to plough profits into expansion. It all kicked off with the acquisition in January of Bombadier Transportation, with its wide portfolio of products including signalling and engineering services. This has given Alstom a bigger footprint in India and the Asia Pacific Region.
Subsequent acquisitions include Flertex and IBRE, both of which specialize in braking systems and bring in specialist expertise, and Shunter, a Dutch services company that maintains rolling stock for freight and passenger transport.
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Even more exciting is the purchase of high-power fuel cells maker Helion Hydrogen Power from privately owned Indian company AREVA Renewable Energies. This consolidates Alstom’s position as a leader in the development of hydrogen-powered trains, which should be an important step in reducing CO2 emissions as well as noise pollution.
Last month Alstom won its first order for hybrid electric-hydrogen trains in four French regions. The contract for 12 trains, each with a capacity of 218 seats, is worth nearly €190 million. The trains can run for up to 600km on non-electrified stretches of track. Other French regions have expressed their interest in placing orders in the not-too-distant future.
The shares have risen from €20 five years ago to peak at €48.42 in January, so the best time to buy has passed. However, they have come off the boil recently for no good reason and now represent value at around €46.
Hobson’s choice: The shares are not for income seekers as there is unlikely to be a dividend any time soon, but they are still a buy up to the April peak of €47. Analysts think they could top €60 this year.
Rodney Hobson is a freelance contributor and not a direct employee of interactive investor.
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