Café de la Bourse was interested in Atos, a French leader in digital transformation and cybersecurity. The group continues its disappointments and continues its descent into hell on the stock market that began in 2021. Let’s get back to the misadventures of the Atos company: financial underperformance, strategic inconsistency or governance crises. Can Atos stock still recover in the stock market after losing 90% of its value since January 2021?
Atos chained financial underperformance since 2020
For Atos, the numbers are no longer in a lively context. While the pandemic has boosted the digital transformation of companies, Atos has not benefited to the extent that the market expected.
For the full year 2020, Atos revenue was €11.8 billion, down 3.5% on an organic basis and down 2.3% at constant exchange rates. At the same time, competitor Capgemini reported a 12.2% increase in sales compared to 2020… Atos’ operating margin also fell sharply, falling by 14% to €1 billion compared to €1.16 billion in 2020’s last financial year.
In 2021, the Atos Group will not be doing better.
The IT services company reported huge losses of €2.96 billion (due to asset write-downs and bad debt provisions on certain contracts) and Atos’ annual revenue fell 3.1% to €10.84 billion.
“Atos faced major challenges in 2021, which is reflected in the group’s results. Financial targets were not met and a comprehensive analysis of assets and contracts carried out earlier in the year in light of the group’s recent change in strategy resulted in significant impairments,” commented its CEO, Rodolphe Belmer, in a press release.
Nothing worked out in the first half of 2022.
Atos’ sales amounted to 5.56 billion euros, down 0.6% at constant exchange rates. The operating margin for the first half of 2022 was 59 million euros compared to 302 million euros in the first half of 2021. Atos’ net loss was 503 million euros in the first half of this year, compared to a loss of 129 million euros in the first half of 2021.
Finally, Atos’ forecasts are not encouraging: the company expects a turnover change of -0.5% and a free cash flow of -150 million euros.
Investors worried about governance crises and a lack of clarity in Atos’ strategy
Investors have doubted Atos for a number of years, particularly over the coherence of its strategy and governance.
In fact, Atos investors were first surprised in 2021 after announcing the takeover bid for DXC, an American consulting firm, for $10 billion.
This offer challenged the group’s strategic direction, in contrast to the previously publicly communicated acquisition strategy: specific industries, strong technological building blocks and a particular focus on cybersecurity.
Earlier this year, Atos announced its desire to split into two separate companies with the planned departure of its CEO, Rodolphe Belmer. This decision would reflect strong tensions within the group’s board of directors. The news was very badly received on the stock market as Rodolphe Belmer took over the reins of Atos in early January and reaffirmed his determination to carry out a major reorganization in order to improve the group’s economic performance and return to growth.
The project of separation into two entities envisages the consolidation of the historical data center activities within a new Atos as well as the creation of a new company called Evidian, which brings together Atos’ growth activities related to cyber security, digital transformation and big data.
This separation should allow the Atos Group to better manage its financial performance. Nonetheless, such a strategic transformation has provided some cooling in an uncertain macroeconomic context, particularly with regard to the financing of the project.
This is an opportunity to be coveted, particularly by the Onepoint Group, which is interested in Evidian’s growth activities. The French IT consulting group, which belongs to the Anglo-Saxon investment fund ICG, is ready to buy Evidian for an enterprise value of 4.2 billion euros.
However, the MOU was initially rejected by Atos’ board, much to the disappointment of retail investors. OnePoint founder David Layani reiterates his desire to create a new French champion in strategy, consulting, technology and data. He also assured that it was a “perfectly friendly offer.”
Atos Stock: What Can We Hope After a Catastrophic Stock Market Development?
Source: Trade View
Atos stock has lost 90% of its value since the beginning of 2021. Atos stock trades at 0.24 times 2022 sales, a steep discount to rival Capgemini, which is paying 1.30 times 2022 sales.
The poor financial results and the lack of visibility at all levels have a very strong impact on Atos’ valuation. Still, the company has certain strengths. For now, however, the market appears to be sanctioning the stock, ignoring the strong elements of the company.
Indeed, this division of activities is an opportunity for Atos to adjust the financial management of its activities in order to maximize the cash flow of historical activities (new Atos) and to invest significantly in its future high potential activities (Evidian). The interest of the Onepoint group in this entity also speaks for the idea of this split.
The Atos Group also expects a recovery in its results in the second half of 2022 and anticipates a return to positive growth at constant exchange rates and an improvement in its operating margin and cash flow.
It will certainly take more to bring back investors who have fled Atos shares for several months. The macroeconomic context is delicate and leaves no room for hesitation, whether strategic, financial or governance.
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