Raute - Market uncertainty continues

Elevated market risks continue to weigh on order intake

Raute’s Q3 revenue decreased by 30% y/y to EUR 33.7m, and hence EBIT declined to EUR 1.7m from EUR 5.5m. Raute posted Q3 services revenue at EUR 17m, a figure in line with our estimate and an increase of 20% y/y. Raute says certain customers have seen deteriorating prices due to the recent boom in plywood and LVL mill investments and subsequent high capacity utilization rates. Raute sees the market currently polarized in the sense that a good level of demand remains for both large as well as small orders (in addition to services and spare parts demand), whereas activity for mid-sized orders such as mill modernizations is weak. The modernization softness was reflected in the very low EUR 8m (EUR 15m) Q3 services order intake. Elevated uncertainty continues to postpone major investment decisions.

Raute is in a good shape to weather further softening

We don’t make major updates to our estimates following the report. We note Raute expects Q4 to be strongest quarter of ’19 in terms of EBIT, which we now expect at EUR 3.0m. In our view Raute is well-positioned for a cooling market environment due to its strong balance sheet and leading product offering. Next year will be greatly helped by the recently disclosed EUR 58m Russian project delivery. On the other hand, excluding the Segezha order the current EUR 109m order backlog implies only some EUR 50m in orders, a rather soft level. In other words, even if the big order alleviates concerns regarding next year, we want to see pick-up in orders before turning our view more positive.

We see valuation as neutral due to uncertainties

We view Raute’s valuation, at ca. 7x EV/EBITDA and 9x EV/EBIT for ‘19e, as neutral. Valuation on ‘20e multiples could quickly turn attractive should orders pick-up, however visibility on next year’s figures remains limited despite the good groundwork laid by the record order. We reiterate our EUR 25 TP and HOLD rating.