Raute - Improving after the clean up
Profitability is set to improve in H2
Raute’s Q2 bottom line will be burdened by big one-offs, including EUR 8-9m in write-downs related to Russian projects and receivables as well as some EUR 1m in restructuring costs such as severance. We thus revise our Q2 EBIT estimate down to EUR -10.7m (prev. EUR -1.4m). H1 results would have been poor even without such items due to the inflation which affects already signed orders. Raute expects profitability to improve in H2, which we do not find a big surprise. Raute is also finding ways to improve margins and lower costs; results should already materialize this year and be even better visible in 2023 especially if Western demand continues to develop favorably.
Western orders continue to pick up after slow years
Raute’s focus tilts to West, especially after the Russian orders have been delivered. North American orders came in at a high level of EUR 15m in Q1, but the level may not extrapolate that well even in a more favorable economic backdrop let alone in a souring one. We still expect the American business continues to pick up as the market was cool even before the pandemic, however we trim our estimates for new orders. Similar logic applies to Europe as the local market softened considerably towards 2019 but showed marked increases in orders last year, including a large Baltic project. Additional large European orders could improve outlook, but it’s difficult to estimate the materialization and timing of such projects especially now that uncertainty tends to undermine plans for larger investments. Our FY ’22 revenue estimate is intact at EUR 146m, but we cut our FY ’23 estimate to EUR 141m (prev. EUR 152m). We cut our FY ’23 EBIT estimate to EUR 4.8m (prev. EUR 6.2m).
Valuation not very challenging, but outlook a bit unclear
In our view Raute retains its position as the global leader within the niche of plywood and LVL machinery, particularly at the upper end of the market. The current valuation of 8x EV/EBIT, on our FY ’23 estimates, is not all too challenging, however there’s still a lot of uncertainty around the next few years’ profitability levels. We revise our TP to EUR 11 (14); our rating is HOLD.