EUR 850.00 For Business Accounts Only

Morningstar | Atos Provides in Line First-Quarter Update; Ambition 2021 Still on Track; Shares Fairly Valued

Atos’ start to the fiscal year is on track with our expectations, and the long-term growth goals set out in its Ambition 2021 plan seem reasonable at this early stage. We continue to view fiscal 2019 as a reshuffling year with the company digesting the acquisition of both Syntel and Six Payment Services while it reduces its holdings in payments business Worldline. Atos’ focus on digital services, data management, and security saw it start the year with positive organic revenue growth, and we believe the firm has a captive audience in its core European markets from which to sustain modest long-term organic growth. Still, its Infrastructure & Data Management, or IDM, business will continue to weigh on overall financial performance with the division seeing broad-based pressure. We don’t expect to see a quick turnaround in IDM, but we do think there is positive momentum around its strategy to focus on hybrid cloud orchestration and digital workplace projects. We will continue to monitor IDM’s organic growth rate as a sign of overall operational improvement at Atos. With management reiterating its outlook for the year and our long-term view unchanged after the quarter, we maintain our EUR 90 fair value estimate and narrow economic moat rating. With shares surging since their nadir in December 2018, we think the company looks fairly valued.

For the quarter, statutory revenue fell 4.3% year over year to EUR 2.82 billion. However, on an organic basis (which excludes scope and exchange rate effects), total group revenue rose 0.4% year over year. Organically, Big Data & Cybersecurity saw the highest growth (up 11.4%) and continues the trend we’ve become accustomed to given the high growth nature of this segment and Atos’ particular strength in this market. At the other end of the spectrum, sales in Atos’ largest business, IDM, fell 3% with manufacturing, retail, and communications cited as areas of decline. Although IDM signed some new large contracts in the quarter, we are hesitant to prescribe too much positivity for this large lumbering business until we start seeing a notable improvement in organic growth.

On the margin front, the firm’s full-year margin outlook remains unchanged, and we expect a gradual improvement in the firm’s operating margin over the midterm. We see accretive acquisitions such as Syntel, cost-cutting, and automation as drivers for this assumption.