Raute - Profitability gains going forward

Raute’s environment has improved faster than we expected, as seen in the recent signing of two large orders. We don’t expect the ongoing year to be that great, but from here on profitability gains appear inevitable. In our view FY ‘22 results could already touch the previous record levels.

EUR 46m in larger disclosed orders set the stage for FY ‘22

Raute has disclosed two new orders over the past couple of months, in total some EUR 46m worth of business for FY ’22. Raute knows both customers well. The EUR 30m Lithuanian LVL mill order will be delivered before the end of Q3’22. The delivery schedule looks much the same for the EUR 16m Russian order. The projects didn’t arrive as a complete surprise since we had already expected meaningful improvement in H2’21 orders, however we now see solid profitability potential for FY ’22 and beyond. We do not expect Q2’21 to have been that great yet, what with EUR 36m in revenue and EUR 1.6m EBIT, but we see profitability can only improve from the recent lows.

We expect about EUR 160m top line for next year

The new orders will not affect Raute’s FY ’21 results. The previous guidance, according to which both top line and operating profit will improve, remains valid. We have made only minor revisions to our FY ’21 profitability estimates. In our opinion annual operating profit will still not be great this year as revenue stays at a somewhat modest level while pandemic restrictions also remain a nuisance. The business is, for now, reliant on a large Russian order and the associated low margin profile limits profitability. We believe, however, that Raute is set to top EUR 10m in EBIT once again next year as the recent negative factors will remain no more. We revise our FY ’22 revenue estimate from EUR 141m to EUR 159m, while our respective EBIT margin estimate increases from 5.6% to 7.0%. We thus see Raute reaching EUR 11m in EBIT, a figure close to that of FY ’17.

Multiples turn attractive with EBIT north of EUR 10m

Our EUR 160m revenue estimate and corresponding 7% EBIT margin imply EBIT in the EUR 11-12m range, which translates to around 7x EV/EBITDA and 9x EV/EBIT multiples for FY ’22-23. We also note Raute reached EUR 15m EBIT in FY ’18, although that level would be difficult to pull off in a steady fashion. Our TP is now EUR 26.5 (21). Our new rating is BUY (HOLD).

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