Atos: Hardly Worth its par value /share (€1)?
The new governance does not change the scenario for Tech Foundations and massive capital increase announced in August 2023. The extended completion time will be even more negative in terms of business development and financing.
Credit: Atos/AFP
Fact
On 16 October 2023, Atos announced a new proposed governance with the appointment of a new Chairman and Vice-Chairman of the Board of Directors. The Group confirmed the process of the disposal of Tech Foundations to EPEI and the underlying financial conditions which include a huge capital increase of €900m and mentioned that the shareholders’ meeting to approve the operation should be in early Q2 24 while this had originally been planned for the end of 2023.
The new governance proposed on is hardly a change, whilst the reconfirmed strategy (split of businesses) is as incomprehensible as before. Implementation delays make it just unacceptably costly for shareholders. It looks set to be dead on arrival.
We lost patience after 18 months of strategic stalling while the existing business suffers, and while new business will not come due to the highly publicised weakness of the firm.
Atos Share Price momentum since 2020.
We binned (admittedly late) our model built on increasingly fragile guidance and went for a review of all likely negatives triggered by the protracted governance disaster. Stopping the rot looks nigh impossible by now.
Analysis
AlphaValue is not equipped to hold a view about ongoing attempts to slice and dice Atos’s businesses. Atos’s web of stakeholders, including French politicians and French military, leaves external observers with no probable path.
We have remodelled our projections of the group in its current shape. Future cash flows and incidental valuation cannot differ when looking at Atos as a whole from what it would be worth in discreet parts.
What we adjusted:
Impact
Atos’s refreshed valuation follows exactly the same procedures as before. Such procedures are the same for all non-financial stocks tracked by AlphaValue.
Procrastinating further may lead to a Casino SA-like situation where current Atos shareholders would contemplate a 100 times or more dilution.
To get access to our new model and projections of Atos, do not hesitate to contact sales@alphavalue.eu
Fact
On 16 October 2023, Atos announced a new proposed governance with the appointment of a new Chairman and Vice-Chairman of the Board of Directors. The Group confirmed the process of the disposal of Tech Foundations to EPEI and the underlying financial conditions which include a huge capital increase of €900m and mentioned that the shareholders’ meeting to approve the operation should be in early Q2 24 while this had originally been planned for the end of 2023.
The new governance proposed on is hardly a change, whilst the reconfirmed strategy (split of businesses) is as incomprehensible as before. Implementation delays make it just unacceptably costly for shareholders. It looks set to be dead on arrival.
We lost patience after 18 months of strategic stalling while the existing business suffers, and while new business will not come due to the highly publicised weakness of the firm.
Atos Share Price momentum since 2020.
We binned (admittedly late) our model built on increasingly fragile guidance and went for a review of all likely negatives triggered by the protracted governance disaster. Stopping the rot looks nigh impossible by now.
Analysis
AlphaValue is not equipped to hold a view about ongoing attempts to slice and dice Atos’s businesses. Atos’s web of stakeholders, including French politicians and French military, leaves external observers with no probable path.
We have remodelled our projections of the group in its current shape. Future cash flows and incidental valuation cannot differ when looking at Atos as a whole from what it would be worth in discreet parts.
What we adjusted:
- 2023 has been left unchanged. Recovery-type growth for 2024 and 2025 has been turned down into a ‘friendly’ contraction of sales and margins. Could it be much worse?
- 2024 and 2025 downgrades lead to negative 2023 earnings continuing into 2024. Will 2025 even breakeven bottom line wise? We are not very sure.
- 2024 and 2025 downgrades lead to a negative reset of the starting point for out-year growth in the DCF computations. Capex has not been cut significantly as it needs to be updated on client premises by contract.
- Cost of funding has been raised to a 750bp spread in the DCF computation as we allow for a subpar non-investment grade status. Next, financial expenses have been raised by c.€50m to €190m to allow for worried lenders and a near-term roll-out that may prove tricky.
- Net debt is expected to contract to the tune of the capital increase of €900m even though that capital hike sounds increasingly unlikely (too far down the road).
- Net debt is computed after booking €3.3bn in gross cash. Such gross cash hinges partly on €0.8bn traded-in receivables that require the business to be running on all cylinders and banks to be happy to buy those receivables. That is evidently not the case currently.
- One can not exclude that ongoing efforts to extend near-term maturities will all be successful.
- Goodwill at €5.3bn vs shareholders funds at €4.2bn (after the €0.9bn recap) may need to be impaired as businesses are reassessed with a declining growth outlook.
Impact
Atos’s refreshed valuation follows exactly the same procedures as before. Such procedures are the same for all non-financial stocks tracked by AlphaValue.
Procrastinating further may lead to a Casino SA-like situation where current Atos shareholders would contemplate a 100 times or more dilution.
To get access to our new model and projections of Atos, do not hesitate to contact sales@alphavalue.eu
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