Raute - Growth to continue long-term

Q2 may see some softening relative to the preceding ones

Raute has already shown encouraging profitability development in the past year or so even when it has lacked volumes due to the rapid shift away from Russia. The company completed its EUR 18m financing in June and is now positioned for growth according to its new strategy, which likely includes Analyzers M&A. We expect Q2 results to be a bit modest compared to the 3 previous quarters (but no deep losses as in Q2’22) as we estimate soft Wood Processing revenue, in addition to which the new ERP system has caused challenges. We estimate top line to have grown at a modest 6% y/y rate from the low comparison period and see EBIT at EUR 0.4m. Raute’s guidance is still quite loose, and we believe H2 figures are likely to specify it upwards.

Large projects to drive growth, short-term more uncertain

Raute has already bagged three large orders, worth a total of EUR 125m, to be delivered in FY ’24-25. These by themselves are likely to push annual revenue well above EUR 150m in the coming years even if smaller order flows prove softer than they have recently been. The three projects do not even include Finland, where Metsä Group has lately confirmed its EUR 300m LVL factory investment; the mill will not be ready until late ’26, its construction probably beginning next spring, but in our view Raute is more likely than not to sign an order of some EUR 50m for the project (the delivery of which could be timed around FY ’25-26 and hence fitting nicely with Raute’s current backlog). Raute’s short-term market outlook and customer demand picture may continue to be somewhat mixed as many industrial end-uses should still fare better than construction activity.

Valuation unchallenging especially in the light of potential

Many Nordic capital goods companies’ valuations have declined over the past few months, however in our view Raute does not have any particularly relevant listed peers. FY ’23 revenue will still be rather modest and bottom line not representative of potential. We continue to estimate 7% FY ‘24 EBITDA margin, a very conservative assumption considering Raute managed 7.7% already in Q1. On that basis Raute is valued 5x EV/EBIT on our FY ’24 estimates. We retain our EUR 12.0 TP and BUY rating.