Altran Technologies : A promising start to the year

Fair Value EUR5.4 vs. EUR4.8 (price EUR4.30)       BUY
News published on March Tuesday 13, 2012
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We raise our DCF-derived fair value to EUR5.4 from EUR4.8 thanks to the lowering of BG’s equity risk premium and risk-free rate (to 6.3% and 3.4%). We deem the good start to 2012 validates a 5% lfl growth scenario. We expect the stock’s re-rating to continue.

-          No sales weakness. Management mentioned sales in January and February were up c.8%, above the embedded growth (+3-4%), our FY11 forecast (+4.1% lfl) and the consensus average (c.+2%). Although March (1 billable day less), Q2 and Q3 should deliver less than +8%, consensus expectations and our own forecasts (before yesterday’s results publication) were conservative. Altran plans to recruit 120 engineers (net) in Q1 12, while demand remains strong in Aerospace and Energy, mixed in Automotive and Telecoms, and weak in Banking & Administration.

-          In line with 2015 targets. Altran reiterates its 2015 goals, i.e. an op. margin of 11-12% (vs. 8% in 2011), a free cash flow yield of 4% (vs. 4%), capex below 1% of sales (vs. 1.1%) and DSOs below 80 days (vs. 86). In order to post an 11-12% op. margin, Altran has 3 drivers: 1). 1.5ppt through a rise in the “invoicing” rate to 88% from 85%; 2). 1ppt through a cut in real estate costs (EUR7m in 2012 and EUR7m more in 2013); and 3). 0.5-1.5ppt through operating leverage. Management does not forecast any restructuring in 2012 provided that those engaged in 2011 (EUR20.6m) bear fruit, and is confident the FY12 consensus op. margin (8.2%) will be attained.

-          Acquisitions update. With a net debt /EBITDA ratio way below 3x (at 1.24x), Altran envisages a resumption of acquisitions. Some deals are in early discussions in Germany, the UK and India, but nothing has to be signed before end 2012 or early 2013. Altran considers the maximum Net debt /EBITDA ratio it intends to reach with acquisitions is 2x.

-          Valuation. Our new DCF-derived fair value of EUR5.4 is based on a mid-term growth rate of 5% and a mid-term adj. EBIT margin of 11%. Altran’s shares are trading at est. 6x 2012 and 4.6x 2013 EV/EBIT multiples.

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