Raute - Profitability drop due to inventories

Raute recorded Q1 revenues at a healthy EUR 41.3m level (vs. EUR 35.3m a year ago), yet EBIT margin declined as timing of certain inventory-related items was unfavorable. Order intake, at EUR 32m, more than halved as the comparison period was also rather unfavorable in this regard. We retain our HOLD rating and EUR 27 target price.

Timing of certain inventory items dragged profitability

According to Raute, the low recorded Q1 EBIT was due to certain exceptional cost items (related to timing of inventories). The company says these amounted to the tune of EUR 0.5-1.0m. As a result, EBIT margin fell to 6.3% (7.8% a year ago). We continue to expect Raute to achieve EBIT margin at slightly above 7% in the coming quarters. Raute’s 2019 guidance remains unchanged.

Russia’s share of order intake high due to a large order

Earlier this spring, Raute announced a relatively large order to be delivered to Russia. The order, valued at over EUR 12m, is for Plyterra’s plywood mill machinery. The order will be delivered in Q1’20. The order pushed Russia’s share of Q1 order intake to 57% (without the order the share would have been around 30%). Raute continues to see Russia and Eastern Europe as promising markets, highlighting Ukraine and Poland as specific countries with good potential. Overall, Raute says the environment has remained stable. There is healthy activity concerning potential capacity expansion projects as well as other larger orders. Demand for maintenance and spare parts continues at a brisk level, signaling high mill capacity utilization rates. Modernization project orders remained low. One source of uncertainty is the rising portion of demand from smaller customers, whose decision-making processes Raute is unable to predict to the same extent as those of a larger customer (e.g. UPM).

Our estimates remain intact, TP at EUR 27 per share

Raute is unable to give very specific guidance. We expect ‘19 sales to decline by some 10% compared to the very high ’18 benchmark figure. We make relatively small adjustments to our estimates based on the report. Our rating remains HOLD, target price at EUR 27 per share.

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