Raute - Moderated guidance for 2019

Name: Evli
Price range: $

Raute has downgraded its 2019 guidance. The company now expects 2019 revenue and operating profit to decline compared to the record highs set in 2018. Raute previously guided flat 2019 figures. We don’t see the profit warning as a major negative development relative to our own expectations as we have previously acknowledged Raute is unlikely to reach similarly lofty figures anytime soon. Our rating remains HOLD; we adjust our TP to EUR 25.5 (27.0).

Raute doesn’t see marked changes in environment

Raute refrains from issuing too specific guidance due to the company’s project-like business. We understand the previous flat guidance covered a relatively wide revenue and profitability range, and we continue to expect double-digit revenue decline in 2019. We expect quarterly revenues at levels close to Q1’19 for the remainder of the year. We lower our 2019 operating margin expectation slightly, to 7.1% (we previously expected 7.4%). In comparison, Raute averaged 8% operating margin in 2017-18. The company cites delays in challenging project deliveries and postponement of larger order negotiations as the reason for lowered guidance. Raute still views the operating environment stable, and sees healthy activity related to possible capacity expansion projects. The company has several large projects pending. On the other hand, Raute highlights additional uncertainty stemming from the increased share of smaller customers, the types of whose decision-making isn’t as straightforward as those of the likes of more established and traditional customers, such as UPM. Raute will assess the need for possible adaptation measures only later in the summer along with the realization of certain orders.

Multiples are undemanding amid uncertainties

Raute continues to trade at low multiples (4.3x EV/EBITDA ‘19e and 5.5x EV/EBIT ‘19e on our estimates). However, the investment cycle for plywood and LVL industries is probably past its peak and demand volumes are shifting to smaller customer accounts, thus making any predictions of potential investment project realizations doubly more difficult. We retain our HOLD rating and adjust our target price to EUR 25.5 (27.0) per share.

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