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Atos: why is the share price falling and will it recover?


Atos (Euronext:ATO) has announced the appointment of a new chief financial officer over the weekend, capping an eventful week that saw the departure of its chief executive officer and its shares plummet by more than 30%.

The French multinational information technology service provider began last week with an announcement of its plans to split the business into two and sell some of its assets. The separation would create two publicly listed companies. The group’s digital and big data and security (BDS) business lines would come under the name Evidian, while its tech foundations arm would continue to trade as Atos.

If the split goes ahead, Atos said it will need €1.6bn of funding for the 2022-2023 period. Philippe Olive has been appointed as deputy CEO for the BDS business, and Nourdine Bihmane has been named as depute CEO in charge of the tech foundations division.

After the split, Atos shareholders will hold 100% of the restructured company, and 70% of Evidian. The remaining 30% stake in Evidian would be held by Atos.

Why split Atos up like this?

The rationale behind the split is to ensure that each has a more focused strategy and dedicated management team to execute its own transformation plan. Evidian will provide exposure to high-growth, high-margin markets, while a turnaround plan for the legacy business is aiming to bring it back to free cash flow positive by 2026.

The plan spooked investors, and resulted in the departure of the company’s chief executive officer Rodolphe Belmer. Belmer, the former CEO of satellite operator Eutelsat Communications, joined the company less than six months ago. Reportedly, he resigned due to disagreements over the strategy for Atos.

His resignation will take effect on 30 September. Meanwhile, Stéphane Lhopiteau, the group’s chief financial officer, will also leave during the second half of the year, with Nathalie Sénéchault announced as his replacement.

How are Atos’ investors and analysts taking this?

Since the end of 2020, Atos has struggled with a series of problems and profit warnings that has seen its market value tumble from €9.8 billion to €1.5 billion. It was also removed from the benchmark CAC 40 index.

The announcement from Atos also resulted in analysts reducing their estimates for the company over the next few years.

Analysts at Oddo BHF lowered their price target for the company from €23 to €13.5, saying that they still see downside due to the additional restructuring plans, which will result in an increase in working capital. The analysts also revised their EPS down by 70% on average over the next two years.

Meanwhile, analysts at Stifel reduced their revenue and profit estimates by 8% and 37%, respectively, for the 2022-26 period. They said the planned departure of the CEO following an arduous recovery plan did not inspire confidence.

Last year, the company posted a 4.3% decrease in revenue to €10.8bn, driven by a significant decline of the classic IT business. For 2022, management said it expects revenue growth at constant currency of -0.5% to 1.5%.

The one good news to come out of last week for Atos was the end of a dispute the company had with the UK government over a £1.2bn supercomputer contract awarded to Microsoft instead of Atos. The firm reached an agreement with the Secretary of State for Business, Energy and Industrial Strategy and the Meteorological Office.

Year-to-date, Atos’ share price is down 68.45% to €12.17.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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