Morningstar | Alstom Ends 2018 on a Strong Footing; Shares Fairly Valued
No-moat Alstom reported fiscal 2018/19 revenue and EBIT margin in line with guidance, and slightly better EBIT relative to our forecast, and that of consensus. Revenue was up 11% organically year over year, with decent contributions from all segments. The EBIT margin expanded 170 basis points, with higher volumes and some cost-cutting underpinning the improvement. As EBIT was slightly, but not materially, better than our forecasts, we maintain our EUR 42 fair value estimate. The current share price allows for modest upside.Alstom finished the year with a book-to-bill of 1.5 times, a strong year, particularly compared with the previous year when the book-to-billl was less than 1 time. Rolling stock (rail cars or carriages) makes up half of Alstom's order book. During the year, the company booked several large orders including next-generation driverless express trains in Montreal, securing these early in 2018/19. However, at the tail end of the fourth quarter Alstom also booked a EUR 100 million order for the Paris metro and a EUR 150 million order for German trains. Both of these will start deliveries in 2022. At the year-end closing, the company's backlog of future projects rose by an impressive 13% organically year over year.
Breaking down the 11% group sales growth, two of the smaller segments, systems and services, outgrew the group and rolling-stock segment (plus 11% year over year). Systems and services were both up 16% year-over-year organically. Services was boosted by long-term contracts in the U.K. and Italy, while systems had good revenue growth from the Middle East.
Alstom serves the power generation and transmission markets, and rail transport market. Co.'s activities are divided into four sectors: the Thermal Power Sector (Co. offers power generation solutions using gas or coal to services including plant modernization, maintenance and operational support); the Renewable Power sector offers EPC solutions, turbines and generators, control equipment and maintenance for Hydropower and Wind power activities; the Grid Sector designs and manufactures equipment and turnkey solutions to manage power grids and transmit electricity from the power plant to the large end-user; and the Transport Sector provides rail transport products, systems and services.
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