Earnings Preview: Revenues of Alten to Plunge in Q2
Alten Will Suffer from its Exposure to Automotive and Aero
ER&D’s largest pure-play globally, Alten, will be announcing its Q2 2020 revenue by the end of July. The company had a very decent Q1, with a 4% CC/CS revenue growth. However, it warned that revenues would be down by ~22% in Q2. The impact will be across sectors and in particular the automotive and aerospace industries.
In Q1 2019, Alten derived 19% of revenues in Q1 2020 from automotive, and 16% from aerospace (this does not include defense). In the two sectors, its most significant clients reconsider each engineering project and make a stop or go decision.
The impact will be harsh, the utilization rate was 78% in April (vs. 89% in Q1), far worse than during the 2008-2009 crisis when it had dropped to 85%. As a result, Alten has guided revenues in H1 2020 would be down by 9%, The company’s profitability will take a hit: the company expects an adjusted profit margin in the 0-5% range.
Alten Has Been the Industry’s Benchmark for Years
For years, Alten has been the best-performer among onshore vendors. The company systematically beat competitors in Europe by its organic growth and profitability and several Indian peers. In 2020, Alten will pay the price for its exposure to the European market: the company has a balanced vertical and client mix. However, it reflects the European market with the predominance of automotive and aero. Alten has developed in recent years relatively quickly in North America, where it derived in 2019 EUR 325m in revenues. However, the company has not developed its presence in the U.S. in the technology sector in Silicon Valley, as Altran did with Aricent. We expect that this will be the priority of Alten in the years to come.