Raute - Profitability in recovery mode

Raute reports Q4 results on Feb 14. There’s still haze around revenue and margins going forward, but long-term potential exists while downside should be limited even if FY ’23 EBIT proves to be more on the soft side.

Q4 EBIT likely to be modest relative to Q3

Raute’s Q3 report was a positive surprise as Europe in particular drove top line EUR 8m above our estimate. The very high EUR 19m services revenue helped EBIT beat our estimate. Raute’s positive margin development is set to continue this year as the worst inflation shock has passed; Raute should have also learned to cope with inflation in project pricing. The Q3 report highlighted strong demand in North America and Europe (partly due to the Russian import gap), in addition to which there have been encouraging signs in Latin America and Asia. We expect stable Q4 EBIT development y/y while we estimate revenue down 14% y/y to EUR 38m. We estimate Q4 EBIT at EUR 0.7m, down from the EUR 1.4m Q3 figure as services revenue is unlikely to be that high this time due to a relative lack of modernization orders.

Profitability should heal over the course of the year

Russian order book was already down to EUR 6m at the end of Q3 and therefore the Q4 report should have no big news on that front, however we expect to hear an update on net working capital issues related to the cancelled Russian projects as well as recent component availability challenges. Raute’s guidance is always loose; we expect the company to guide improving (positive) EBIT for the year. A larger order could lift outlook further if demand remains strong over the course of the year.

Short-term downside seems limited, lots of EBIT potential

Raute should reach at least some modest positive EBIT in FY ’23 as inflation abates and the company achieves EUR 4-5m in annual savings. Favorable revenue (and mix) development could drive FY ’23 EBIT to a very decent level, although still likely well short of EUR 10m even in an optimistic scenario. We consider FY ’23 EBIT of ca. EUR 5m a realistic scenario. Raute may miss our base case estimate for FY ‘23 if Western demand begins to sour, but even in that case downside should be limited as there seem to have been no changes to Raute’s competitive positioning. We thus consider the 7x EV/EBIT valuation, on our FY ’23 estimates, undemanding. We retain our EUR 11 TP and BUY rating.

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