Alten Impresses in Q2 2018. Questions about Long-Term Remain

/ August 5, 2018/ Alten, France, Germany

Alten has continued to perform well this year, with a Q2 2018 growth of 12.9% yoy, to revenues of EUR 552m. CC/CS growth accelerated sequentially from 8.5% in Q1 to 11.5% in Q2, driven by high recruitment levels, high utilization rate (to 92.1%), and a stable number of working days yoy.

Alten reported very favorable market conditions across countries and sectors. The company is seeing an improvement in two key geographies: Germany, which was up thanks to one additional working day, and a better environment in the automotive supplier sector (with automotive OEMs stable); the UK was up across industries, but suffering from Alten’s specific exposure to oil & gas (-60% in revenues in the sector).

Overall, Alten highlights that growth in automotive has halved yoy, to +11% (at CC/CS), with, suppliers growing faster than OEMs. Offshoring is accelerating, mostly with one French OEM.  Alten is more positive about the automotive sector than early this year. Oil & gas is now stabilizing but not showing any sign of rebound. In telecom, service providers continue to drive spending, while equipment manufacturers are still down (except for a large Sweden client).

The critical question about Alten continues to be: “can Alten sustain its financial performance and business model?”

Alten is the best performer of all French ER&D service vendors, with revenue growth at CC/CS better than any other firm. Its adjusted EBIT margin is second to Altran. While Altran is on a profitability improvement journey, Alten is plateau-ing with its adjusted EBIT margin and operates in a 9.5%-10% range that is influenced each year by the number of working days, and the dilutive impact from acquisitions.

To a large extent, Alten is avoiding the type of transformation towards offshore that Altran has gone through. Alten is growing its global delivery network, quietly and steadily. The company’s offshore presence is reactive to client demand, and only represents an estimated 7% of its total headcount. I’d like to see more. On the positive side, Alten is debt-free in spite of its steady M&A flow, while Altran has a multi-billion net debt and went through an EUR 750 capital increase to finance the Aricent acquisition. In the mid-term, Alten is in a better financial position than Altran. The question is about the long-term future.


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