PARIS — A wire service reports that shares of French engineering and transportation equipment company Alstom SA took a pounding on Thursday after a Deutsche Bank downgrade that was compounded by mounting concerns about the safety of trains the company has supplied to the U.S.
By mid-afternoon, Alstom shares were trading down 15% at EUR7, a drop of 24% so far this week.
Traders said investors headed for the door after Deutsche Bank disclosed it had obtained a first-quarter balance sheet extract from the debt-laden company on Aug. 7 that suggests the company’s EUR800 million cash burn in the period ” comfortably exceeded the proceeds from the recently completed rights issue” through which Alstom raised EUR600 million.
That could hamper the company’s capacity to repay its debt. Alstom has been battling to shore up its profits after orders from its flagship power generating equipment division slipped last year.
Noting that such data can be “volatile,” the investment bank downgraded its opinion of the company’s shares to underperform, commenting that “turnaround will be challenging given weak markets and customer advances falling with orders.”
It went on to say that Alstom may be too reliant on short-term debt, and that the group’s securitization financing lacks transparency.
The bank set a new price target for Alstom shares of EUR6.50 based on a sum- of-the-parts valuation and based on latest engineering sector multiples.
There was more bad news for Alstom Thursday when Amtrak announced that it has once again canceled its high-speed Acela Express train service in the Boston-New York-Washington corridor after new cracks were found in the trains’ locomotives.
All 18 Acela trains were withdrawn from service on Tuesday after inspectors discovered cracks in brackets that attach shock-absorbing “yaw damper assemblies” to locomotives, but two trains were returned to service on Wednesday after passing an inspection, and Amtrak had planned to add three more Thursday.
Alstom built the locomotives in cooperation with Bombardier Inc. (BBD.A.to) of Canada. The French company has a 25% interest in the partnership.
Earlier this week, Alstom said it doesn’t expect any significant financial impact from Amtrak’s decision to suspend the Acela services.
The Acela problems are bad publicity for Alstom. Just two weeks ago, the company announced it had won a $2.4 billion contract to build as many as 1,700 subway cars for New York City’s Metropolitan Transportation Authority in what was hailed as one of the biggest transportation deals in history.