Alten Does Better than Expected in Q2. H2 Outlook Is Uncertain

/ July 30, 2020/ Aerospace, Alten, Automotive, Financials, France

Alten Performed Slightly Better than its Guidance in Q2

Alten announced better than expected revenues in Q2 with a CC/CS decline of 18.4% (we expected -23%), after a growth of 4.0% in Q1. During H1, the decline was 7.3% (guidance: -9%).

Altran shared a familiar story: aerospace and automotive declined the fastest (respectively -38% and -40% at CC/CS in Q2). The aerospace market will not rebound before 2024. The outlook for automotive is more positive. Alten expects an improvement in the automotive from mid-2021, driven by new investments. Alten considers that hydrogen will drive investment, with lithium batteries considered as a temporary phase, due to their impact on the environment during their production. All other sectors showed more resilience, apart from an ISV client that services the airline industry.

Heavily Suffering in France, Germany, and Sweden

Alten suffered the most in three geographies, France (-28%), Germany (-26%), and Sweden (-26%), where its client base relies on the automotive and aerospace industry. The company was less hurt in the UK (-4%) and the US (-13%), thanks to its diversified client base and also a softer lockdown in Q2. H2 is uncertain for these two countries.

Spain and Italy stood out among all countries, for having entered the lockdown earlier, among Western countries, and deployed severe lockdown measures. Surprisingly Spain and Italy did relatively well, respectively, with a CC/CS growth of -8% and +8%. Italy, in particular, adopted WfH quickly, and Alten even increased its engineering revenues from a large automotive firm.

The H2 Outlook Is Mitigated

Alten did not expect a V-shape recovery and highlighted it has very little-visibility on H2. Aerospace and automotive clients are still navigating their way through projects and holding current projects. In the meantime, sectors that have done well, e.g., life science, are anticipating a long-lasting crisis and considering reducing their R&D budgets. As a result, Alten’s profitability will take a hit in H2 adjusted EBIT margin will be lower than in H1 (guidance for H1: ~5%).

Alten has, for now, limited redundancies, apart from Sweden (and the UK), it considers its activities with Scania, Volvo Cars and Volvo Trucks as gone, an opinion that AFRY shares. The company will re-consider in September-October its no-layoff decision when it has more visibility on clients’ budgets and governmental packages. For now, Aten believes the benefits of keeping its engineer workforce outweigh the wage offsetting.

Alten More Open to Offshoring

Also, Alten seems more open about offshoring. The company wants to be selective with offshoring, targeting large projects that can be industrialized. However, the company is not seeing yet client demand for offshoring. We think this decision to put more emphasis on offshore delivery is a significant decision for the firm. In the past, the company had been reluctant to use offshore. However, we don’t expect a major offshore shift in the short-term as clients and Alten still focus on daily operations.

Finally, Alten denied that it had been formally ousted from Renault’s list of tier-one suppliers. The company said the selection process was still going on and reminded that prices in the French automotive sector are the lowest in the country. We still think that Alten will protect its margins, adopt offshoring if required, and accept to become a tier-two supplier to Renault.

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