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Alcatel-Lucent Message Board

  • romangerasch romangerasch Jan 7, 2013 3:08 PM Flag

    ALU: Goldman Loses ‘Conviction’ in Sell Rating, But Still Bearish

    Goldman Sachs’s Simon Schafer today removed the ordinary shares of Alcatel-Lucent (ALUAPA) from the Conviction List as a Sell, even though he still actually rates it a Sell, noting that the stock has soared some 48% since he recommended on October 5th that investors dump the shares — a surge prompted in large part because Goldman itself lent a lifeline to the company last month.

    Despite the tremendous rise, Schafer is still bearish on the company, he writes, recounting what he believes is at the root of the price surge:

    In our view outperformance has been driven by upside to capex intentions of US Telcos, granular disclosure on ALU’s patent portfolio and the announcement of a planned significant change in Alcatel’s capital structure, mitigating tail risk. We remove ALUA.PA and ALU from the Conviction List but they remain Sell given the group’s Q4 industry positioning and returns.

    Schafer’s estimates for Alcatel are still well below the Street — he actually cut his estimate for profit this year to a net loss of 36 cents per American Depository Share, versus a prior 32 cents, below consensus of negative 7 cents.

    But the company’s announcement December 14th that it secured €1.62 billion in financing from Credit Suisse and Goldman Sachs in senior secured credit facilities has taken away the risk Acatel will burn through cash unsustainably:

    the planned debt injection clearly eliminates near-term tail risk to the equity and should allow Alcatel to operate as a going concern until at least 2015. We now estimate positive liquidity of €1.6 bn in 2014 (given refinancing and asset disposals) vs. our prior estimate of a €300 mn shortfall. We still view Alcatel as subscale in a fragmented market and therefore apply a 4th quartile designation on our Industry Positioning framework. Our expectations for cash returns remain low, even if momentum for US Telco capex may provide a 1H13 tailwind.

    Alcatel’s ordinary shares traded in Paris today rose 9 euro cents to €1.295, while the ADSs (ALU) are up 9 cents, over 5%, at $1.73.

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