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Raute - EBIT improves from a low base

Raute’s Q4 report didn’t provide that many news as recent profitability challenges are familiar. Demand stays high, but inflation means H1’22 EBIT is to remain well below potential. We continue to expect gradual improvement.

Results will improve this year (and next)

Raute’s Q4 revenue grew 13% y/y to EUR 44m, while EBIT was EUR 0.5m vs our EUR -0.6m estimate; the gap was due to the allocation of cloud-based IT project costs, which were spread retroactively over many quarters. Raute’s Q4 EBIT was still a far cry from potential, but order momentum continued stronger than we expected and even Raute was surprised by the EUR 50m in Q4 orders. Q1 orders have remained robust, however not quite as high as in Q4, and we expect the figure to top EUR 30m. Raute can meet the current level of demand, but delivery times have naturally been prolonged. Raute guides improving EBIT, but various factors, including inflation, will make the precise gradient hard to gauge. The IT project also continues to burden short-term results yet will contribute to EBIT going forward.

Inflation will still burden near-term results

We make no significant changes to our estimates; we expect Raute to reach around 5% EBIT margin this year. H1’22 EBIT will still suffer from inflation as the orders signed earlier materialize, but the situation should improve somewhat throughout the year as the order book rolls forward and so catches up with higher component prices. We revise our FY ’22 EBIT estimate to EUR 8.6m (prev. EUR 9.0m), while our new FY ’23 estimate is EUR 11.3m (prev. EUR 11.0m). The inflationary environment’s precise impact on the order book’s unfolding remains to be seen, but in our view the current active order level means EBIT is set to improve for at least a few years.

We retain our EUR 22 TP and BUY rating

Raute’s valuation remains undemanding, around 5-6x EV/EBITDA and 6-8x EV/EBIT on our FY ’22-23 estimates, and in our view some caution is in order considering the uncertainty inflation imposes on near-term results. Yet we believe Raute is poised to again reach EUR 10m EBIT in the coming years. That mark would imply only around 6% EBIT margin, a level Raute has managed to top with some EUR 150m annual revenue, while current demand in our view can support a top line EUR 20-30m higher than that.

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