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Raute - Improving earnings are in the cards

Raute’s environment is improving a bit faster than we expected, but FY ’21 profitability will still not be great. Valuation reflects earnings gains for many years to come. In our view further upside appears elusive for now.

New capacity projects are yet to materialize

Raute’s Q1 order intake was EUR 30m, a 20% y/y increase and way above our EUR 22m estimate. There were no big orders. Project deliveries’ EUR 11m figure was close to what we expected while the EUR 19m in services orders beat our EUR 12m estimate due to high North American modernization orders. Pent-up US demand drove the figure and thus we see cautious extrapolation is in order, but mills’ utilization rates are improving worldwide. Raute sees European demand to be at a normal level. Russian order intake was muted in Q1 while demand potential remains in place. Q1 revenue amounted to EUR 25m vs our EUR 34m estimate. Raute foresaw Q1’s relative slowness. Pandemic restrictions also remain a nuisance. The low top line also meant EBIT was EUR -2.5m, compared to our EUR 1.6m estimate.

Orders are picking up, albeit from low levels

Raute also highlighted potential component shortages, however the company is addressing the challenge and in our view the issue is not that meaningful given Raute’s long-term story and overall competitive positioning. We make some revisions to our estimates, however the overall valuation picture remains unaltered. It’s clear Raute’s business is now picking up from the recent lows and the favorable order intake development also begins to support FY ’22, for which we now expect ca. 5% growth. It nevertheless seems the approximately EUR 160m revenue figure (of which some EUR 100m projects and EUR 60m services) that helped Raute to achieve above EUR 10m EBIT in the past remains many years in the future.

In our view valuation still doesn’t leave meaningful upside

The pick-up in orders turns us more confident towards next year. We expect Raute to reach only some EUR 2m in EBIT this year, compared to the potential that is many times the number. We estimate the figure to rise close to EUR 8m next year, however Raute is already trading about 9x EV/EBITDA and 13x EV/EBIT on those estimates. Full long-term earnings potential in our view remains too many years away. Our TP is EUR 21, retain HOLD.

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