Raute - Potential is valued too steep

Name: Evli
Price range: $

Raute’s Q4 was uneventful compared to preceding ones, not counting the large Russian order. Raute seems to be doing correct things from a strategic perspective, but we view the multiples simply too high given the current weak market environment. Our TP is EUR 21 (20), retain SELL.

Still no marked improvement in smaller project orders

Raute’s EUR 39m Q4 revenue was known before. The EUR 0.8m EBIT didn’t meet our EUR 2.0m estimate as the mix was tilted more towards projects than we expected. Inventory write-downs and pandemic restrictions were further headwinds. Order intake was EUR 70m (vs our EUR 74m estimate). Small project deliveries were booked only to the tune of EUR 3m (vs our EUR 7m estimate), excluding the EUR 55m Russian order. The figure can be compared to the EUR 2m seen in Q3’20 and EUR 4m in Q4’19. Technology services orders were EUR 12m as we expected, down by 8% y/y but improvement from the previous pandemic lows.

Results will improve in FY ‘21, we estimate EBIT at EUR 6m

Raute’s FY ’20 EBIT was negative due to low top line, unfavorable mix (low services share but also the fact that projects were tilted towards a large low-margin order), pandemic restrictions and high R&D investments. Revenue will be higher this year and services outlook is improving. The most acute phase of the pandemic has been passed and restrictions should fade away towards the end of the year, but FY ’21 EBIT potential remains limited due to the continued reliance on a large Russian order. The focus on R&D also remains. Raute’s strong Russian traction and the strategic focus on developing more competitive technology for emerging markets are long-term positives, but in the short-term perspective profitability outlook is still muted relative to the recent years’ avg. EUR 11m EBIT. European mill orders are also unlikely to reach the levels of recent high years.

Potential exists, but we view the multiples too steep

In our opinion Raute’s valuation still requires patience as there has not been, so far, any concrete sign of smaller orders picking up. Raute is now valued ca. 10x EV/EBITDA and 16x EV/EBIT on our FY ’21 estimates. The multiples could decrease to around 8x and 11x in the coming years. The outlook might well improve fast, but right now this doesn’t seem to be the case. Our new TP is EUR 21 (20). We retain our SELL rating.

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