Atos: from roll-up to blow-up as IT group gropes for reboot change


Atos loved years of acquisition-fuelled development. Flaws within the French IT group’s roll-up technique started showing after an formidable bid failed in early 2021. Even so, traders are shocked by the information chief govt Rodolphe Belmer is leaving amid a restructuring. The shares, down by three-quarters since January 2021, fell one other 23 per cent on Tuesday.

Belmer is seemingly departing after falling out with different board members over a spin-off. The disagreement left the ex-Eutelsat boss, who began solely in January, ill-placed to promote the deserves of the turnround plan underpinned by the transaction.

There is a logic in demerging a worthwhile huge knowledge and cyber safety division. That ought to cease it being dragged down by the legacy IT companies enterprise. This is affected by problematic legacy contracts and IT budgets shifting to cloud funding.

Atos reckons IT companies will price €1.1bn to show spherical. The unit is barely anticipated to begin making working earnings in 2025. Investors will attribute little worth to it.

The huge knowledge and cyber safety enterprise operates in fast-growing markets and is price extra. Atos reckons free money move, earlier than curiosity and tax, may develop practically fivefold to €700mn by 2026.

Assume, generously, that the corporate meets its targets. Applying a 7 per cent free money move yield and deducting €400mn of deliberate funding, implies a worth of as a lot as €3.5bn for Atos traders who would get 70 per cent of it. The the rest can be held by the rump firm to fund the turnround.

Investors ought to be extra sceptical. Atos wants €1.6bn in funding for 2021-22, after taking account of debt repayments and deliberate asset gross sales. This sum is now larger than the market worth. Given its weak money flows, there’s a threat internet money owed will rise sharply. That would breach a debt covenant, in accordance with Citi.

Atos insists there is no such thing as a threat of this, so no want to lift extra capital. But the administration workforce is untested. Any investor becoming a member of this rescue mission might themselves find yourself floundering.