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Financial overview


Raute - Uncertainty continues to run high

24.07.2020 | Company update

Raute reported Q2 results below our expectations. We turn slightly more cautious as uncertainty remains quite elevated. Our TP is now EUR 20 (21), rating HOLD (BUY).

Uncertainty is high as many regions grapple with the crisis

Raute posted EUR 24m in Q2 revenue vs our EUR 29m estimate. Services revenue was as expected (EUR 10m) while project deliveries were EUR 5m below our EUR 19m expectation. Russian revenue, at EUR 12m, was EUR 7m lower than we estimated, and the low figure is explained by order book timing with regards to the large EUR 58m Russian order to be delivered mostly this year. Order book timing as well as the pandemic (which complicated installations and services) meant profitability was weak also in Q2 as the company recorded EBIT at EUR -1.0m vs our EUR 1.3m estimate. Order intake, at EUR 13m, was also lower than we expected (EUR 19m) and was due to softness in both machinery and services orders. Order intake declined by half y/y as the pandemic postponed project decisions. Russian orders were lower in Q2 than we expected (EUR 3m vs our EUR 9m estimate). Although no major projects were initiated during the quarter Raute says cancellations are unlikely and many investment decisions could receive green light when the situation stabilizes.

We make minor estimate changes

According to Raute activity levels are still good in Russia and China, and customers are planning some big strategic investment projects but for now there’s no way to reliably estimate a time frame during which the leads might translate to actual orders for Raute. We expect Q2 to prove the slowest quarter for Raute in terms of order intake, but there’s significant uncertainty as to how rapidly order intake might improve in H2.

Long-term strategy intact yet short-term outlook hazy

We continue to view Raute’s prospects beyond this year’s weak results. A significant pick up in order activity would likely follow the operating environment’s inevitable normalization, but this might take some time to be reflected in the order book. We view Raute well positioned to capture large plywood and LVL machinery orders in the coming years once the sector is ready to commit itself to new capacity investments. However, in the current uncertain environment we see the overall valuation picture neutral. Our new TP is EUR 20 (21), rating HOLD (BUY).

Raute - Results below our expectations

23.07.2020 | Earnings Flash

Raute’s Q2 results were clearly below our expectations with respect to revenue and profitability as well as order intake.

  • Q2 revenue amounted to EUR 24.4m vs our EUR 29.0m estimate. The shortfall was attributable to project deliveries.
  • EBIT was EUR -1.0m, compared to our EUR 1.3m expectation. Order book timing affected the results negatively.
  • Q2 order intake stood at EUR 13m (EUR 26m a year ago) while we expected EUR 19m. Order intake for both project deliveries and technology services declined by about half y/y. The pandemic postpones investment decisions but Raute says project cancellations are unlikely and the situation could normalize quickly.
  • Order book amounted to EUR 80m at the end of the quarter (EUR 72m a year ago), which we view a rather good figure.

Raute - Longer perspective is warranted

20.07.2020 | Preview

Raute reports Q2 results on Thu, Jul 23. Order book stands at a decent level but Q2 must have been slow with respect to new orders. Raute issued two releases in Q2 which speak of the company’s strategy proceeding according to plan; however, these news items will not immediately impact our estimates. In our view valuation is turning attractive on our unchanged estimates. Our TP is EUR 21, rating BUY (HOLD).

Order intake was likely low, but strategy appears on track

Raute didn’t disclose any large orders in Q2, which in our view is unsurprising. However, the company did book an order for the delivery of modern veneer drying and automated lay-up lines to South China. Although the order is moderate in size, amounting to perhaps a few million euros, it may prove to hold significant reference value for Raute as the machinery represents the inaugural Chinese purchase of such advanced plywood production technology. The order will be delivered by the end of this year. In our view the order is an initial encouraging sign that the Chinese plywood market, by far the biggest, is gradually maturing towards higher quality standards. Raute has so far been unable to make meaningful inroads into the market and it remains to be seen in what time frame significant results might materialize. Raute also recently announced the acquisition of a Finnish software company specializing in demanding industrial solutions, including machine vision. From a financial perspective the deal has no impact on our current estimates but is consistent with Raute’s strategy, according to which the company continues to invest in further developing its technological edge.

We see soft Q2 order intake, expect improvement in H2

We expect Raute to have booked EUR 19m in Q2 new orders i.e. about half the average quarterly level last year. As with so many other industries, the focus will be on comments regarding the changes and improvement in activity following the most acute weeks of the pandemic lockdown.

We view valuation low especially relative to peer multiples

This year will not be great in terms of profitability. On our estimates for next year Raute currently trades ca. 5.5x EV/EBITDA and 8.5x EV/EBIT; despite uncertainty regarding the sharpness of next year’s profitability improvement we view these multiples attractive. Our TP remains EUR 21, rating now BUY (HOLD).

Raute - Long-term story not much changed

30.04.2020 | Company update

Raute’s Q1 results missed our estimates due to order timing and certain delays, while order intake was a positive surprise. The pandemic has so far had a limited impact. In the big picture our view is not meaningfully changed since Raute’s results tend to be volatile also in more normal times. Our TP remains EUR 21 and rating HOLD.

Outlook seems to have turned more positive in early Q1
Q1 revenue fell by 42% y/y to EUR 24m vs our EUR 36m estimate. Services’ EUR 10m top line fell short of our EUR 13m expectation, but most of the gap was due to project deliveries’ order timing as the EUR 58m Russian order was recognized at a lower rate than we expected. Certain unseen delivery delays also had an impact. Project revenue thus amounted to EUR 14m while we had estimated EUR 23m. The EUR -3.0m EBIT (vs our EUR 1.5m estimate) was also due to higher investments in R&D, which Raute booked EUR 1.4m in Q1, or slightly higher than our expectation (Raute says there were certain exceptional items to the line and says ca. EUR 1.2m would be a more normal figure). The report’s positive note was found in order intake, which at EUR 25m was above our EUR 15m estimate. Technology services’ order intake, at EUR 11m, was as we expected and so the EUR 14m in project deliveries orders clearly exceeded our estimate.

Raute’s competitive position is unlikely to be hit
Maintenance and spare parts demand continued good, but safety policies began to restrict business with the onset of the pandemic. Raute saw positive signs in terms of potential uptick in demand prior to the pandemic. Since then customers’ comments have been mixed and there’s no consensus on how long-term fundamentals might have been altered. Our view is that end-demand, i.e. wood-based construction, is not meaningfully impaired. Government actions could possibly help construction but right now there are few facts. The EUR 92m order book is highly current i.e. cancellations are unlikely. The EUR 40m cash position means liquidity is no problem.

We see reasons why more long-term valuation is justified
Multiples for FY ‘20 begin to look high but should normalize next year. We see Raute well-positioned for an uncertain macro environment and thus in our opinion a more long-term view is justified. Our TP is still EUR 21, rating HOLD.

Raute - Miss driven by order book timing

29.04.2020 | Earnings Flash

Raute’s Q1 revenue and EBIT came in clearly below our expectations. According to Raute the pandemic had some negative impact, but the miss relative to our estimates seems to have been mostly attributable to order book scheduling. Order intake was clearly above our estimate, meaning order book increased slightly during the quarter.

  • Raute posted EUR 23.8m Q1 revenue, compared to our 36.0m estimate. Project deliveries generated EUR 14.0m revenue (which we had expected at EUR 23.0m), while technology services sales amounted to EUR 9.8m (vs our EUR 13.0m estimate). The rather low top line figure was due to the timing of order book and a few projects’ postponing but the pandemic also had a negative impact, which Raute says was limited but not insignificant.
  • Q1 EBIT amounted to EUR -3.0m vs our EUR 1.5m estimate.
  • Order intake was EUR 25m in Q1 while we expected EUR 15m. The intake consisted of small and mid-sized individual production line deliveries and modernizations. Most of the orders received were attributable to projects that were negotiated long before the pandemic. Raute’s customers have continued to start up their investment projects in the face of the pandemic.
  • Order book stood at EUR 92m, compared to our EUR 67m expectation. In our view this is a rather strong figure.

Raute - Outlook weakens

27.04.2020 | Company update

Raute downgraded its outlook for FY ‘20 ahead of the Q1 report, which the company releases on Wed, 29 Apr. We cut our estimates; TP now EUR 21 (25), rating still HOLD.

We expect FY ’20 revenue down almost 20% y/y
Raute issued a profit warning. The company had previously guided flat revenue and decreasing operating profit for 2020 compared to 2019. The updated outlook guides declining top line as well as clearly weakening operating profit. The downgrade is not particularly surprising since Raute noted increasing uncertainty in the operating environment already last year due to cooling demand in the wake of major new capacity investments. There was a dearth of demand for mid-sized projects like modernizations. Raute saw demand for large and small orders at a good level, however it’s always hard to anticipate when big investment decisions will receive green light and the current extraordinary macroeconomic environment will not help. Safety policies will also limit assembly, commissioning and maintenance works at plywood and LVL mills.

We estimate FY ’20 EBIT falling close to 40% y/y
We cut our estimates for this year and next. We expect Raute’s top line at EUR 123m in ’20 (previously estimated EUR 142m) while we see EBIT down to EUR 5.2m (prev. EUR 7.6m). This year finds support from the record EUR 58m Segezha order, but extended weakness in order intake will mean next year revenue prospects will be under pressure as well. Should order intake begin to improve during the latter half of ‘20 we expect Raute to achieve rather stable development in ’21. We now estimate ’21 revenue at EUR 127m (prev. EUR 140m) and have revised ’21 EBIT estimate down to EUR 7.4m (prev. EUR 9.3m). We don’t see the pandemic hurting Raute’s long-term competitive positioning as the market leader within its niche. If anything, in our view it’s more likely that the opposite would be true.

We still view valuation neutral given competitive position
Raute trades some 7x EV/EBITDA and 12x EV/EBIT on our new estimates for ‘20. On our next year estimates the multiples stand at 5.5x and 8.5x, respectively. In our view current valuation falls within an acceptable range considering earnings have plenty of potential to rebound from the low level to be seen this year. Our new TP is EUR 21 (25), rating remains HOLD.

Raute - Adapting to a shift in demand

04.03.2020 | Company report

Raute’s 2017-18 was busy as familiar customers executed major capacity investments; thus ’18 marked a record year for the company. European order intake fell substantially in ’19, and was soft in other markets as well, barring Russia. This year may prove a relatively stable one owing to the record-large Russian order, yet should the cool environment be prolonged revenue is bound to fall further from the EUR 150m level. Our TP is EUR 25, rating HOLD.

Demand for large and small orders remains at a good level

Raute left the record-year ’18 behind with a strong EUR 95m order book. Order intake remained at a decent level in early ’19, but activity began to cool steadily during the year due to increasing market uncertainty. This was manifest in mid-sized projects (such as repair and improvement investments) accounting for an exceptionally low share of order activity. Uncertainty has stayed high, but it should also be noted demand for spare parts and maintenance services remains stable, implying good capacity utilization rates at plywood and LVL mills. The record-large EUR 58m Segezha order means Raute can guide flat sales development for this year. Nevertheless, Raute guides decreasing EBIT for the year as the company has recognized a need to accelerate its investments in R&D and marketing. Raute looks to segment its machinery in order to better address lower price points and so achieve meaningful growth in emerging markets, but also aims to further improve its digital solutions offering.

Focus now on the missing middle-sized order demand

Raute’s customer demand is now focused on both large and small orders i.e. major new capacity projects, minor improvements and services. By contrast, demand for mid-sized projects, like modernizations, is at an exceptionally low level. It’s always hard to predict when big orders will materialize; we’ll focus on monitoring how mid-sized order activity develops going forward.

We view the multiples neutral in current market situation

Raute is now valued at 7x EV/EBITDA and 11x EV/EBIT ‘20e. We view the valuation neutral given the long-term fundamentals but high current uncertainty. Our TP is EUR 25, rating HOLD.

Raute - Growth pursuit weighs EBIT this year

14.02.2020 | Company update

Raute’s Q4 was mixed relative to our estimates. More important was Raute’s commitment to pursue emerging markets growth. We retain our EUR 25 TP and HOLD rating.

Q4 put an end to a year following the record-high one

Raute reported EUR 39.3m in Q4 sales, above our EUR 37.0m estimate but down by 27% y/y. Project deliveries sales declined by 36% y/y to EUR 24.1m, while technology services top line was also soft at EUR 15.2m (down 10% y/y) owing to the low demand for cyclical modernization projects. We had expected Raute to post EUR 3.0m in Q4 EBIT as the company indicated Q4 would be the strongest in ’19 in terms of profitability, however the figure was realized at EUR 1.8m due to certain unforeseen costs owing to the record-high workload in ’18. With regards to order activity, Raute booked EUR 17m in new orders during Q4. The figure was slightly below our EUR 19m expectation and declined by 39% y/y. The EUR 4m project order intake was indeed low, while services orders dropped by 32% to EUR 13m due to lack of modernizations. In our view the cool market is not, at least for now, a major problem for Raute as the company should still be able to post relatively stable top line this year thanks to the EUR 58m Segezha project (and total EUR 88m order book).

Raute guides flat sales and lower EBIT for this year

In our opinion Raute’s decision to guide stable sales development for ’20 wasn’t a surprise. In practice Raute’s guidance policy is rather loose and given the recent order flow we see sales slightly down this year. The picture could of course change swiftly should larger orders materialize. In our view the main takeaway was that Raute expects lower EBIT this year as the company is responding to the market shift by committing itself to increased efforts in R&D and marketing. As European activity remains low due to recent major investment cycle in new capacity, Raute aims to grow in emerging markets more seriously than before by segmenting its equipment to better reach lower price points.

We update our estimates following the report

We have cut our estimates for this year as the market environment has remained cool. While we previously expected Raute’s ‘20e revenue to amount to EUR 148.6m, we now expect EUR 141.8m. With regards to operating profit, we previously expected Raute to achieve EUR 11.1m this year. We now see the figure down to EUR 7.8m as Raute has decided to invest more in developing its offering more attractive for emerging markets. Raute used to spend some EUR 3m annually in R&D; looking at Raute’s latest figures we think the company is on track to spend more than EUR 5m this year. Moreover, the large Segezha order makes up a significant portion of workload this year and thus its lower margin will restrict operating profit potential.

We continue to view valuation neutral

In the long-term an expanded offering could have big financial potential. Still, the current picture is rather murky. We view Raute’s valuation (8x EV/EBITDA and 12x EV/EBIT ‘20e) neutral in the current environment. Our TP is still EUR 25, rating HOLD.

Raute - Guides lower operating profit

13.02.2020 | Earnings Flash

Raute reported Q4 revenue above our expectations, however operating profit fell clearly short of our expectations as Raute discovered costs attributable to ’18 workload. As expected, Raute guides flat sales development for ’20, however we didn’t expect the company to guide lower operating profit for the year.

  • Raute reported EUR 39.3m Q4 sales (27% y/y decline) in comparison to our EUR 37.0m estimate. Project deliveries generated EUR 24.1m in sales.
  • Q4 EBIT amounted to EUR 1.8m, while we had estimated EUR 3.0m. The figure was burdened by unforeseen costs stemming from record-high workload in ‘18. Apparently Raute discovered these issues not before late ’19. Operating margin was thus 4.6% vs our 8.1% expectation.
  • Q4 order intake was EUR 17m vs our EUR 19m expectation. Order intake thus decreased 39% y/y. Order book stood at EUR 88m (EUR 95m a year ago).
  • The BoD’s dividend proposal is EUR 1.45 per share.
  • Raute guides flat sales development for this year (as expected) but expects operating profit to decrease due to adaption measures taken to respond to shifting markets as well as investments in marketing, product development and digitalization.

Raute - This year relies on a record order

10.02.2020 | Preview

Raute reports Q4 results on Thu, Feb 13. Our estimates stand unchanged since we see market softness still exists as before. We retain our EUR 25 TP and HOLD rating.

Raute did not disclose any large orders in late ‘19

We see no reason to update our estimates for Q4 and beyond as Raute hasn’t released information regarding any larger booked orders since the company disclosed the record-large EUR 58m Russian project. Raute booked the Segezha order at the end of Q3 and the project will be delivered this year, meaning Raute has a decent backbone from which to work on in an environment of cooling demand. All in all, our view towards Raute hasn’t changed in the sense that we continue to wait to see more positive signals in the market, which is still mostly cooling in the wake of a strong capacity investment boom in Europe.

We expect Q4 order intake to have declined to EUR 19m

Raute’s Q3 revenue decreased by 30% y/y to EUR 33.7m as project deliveries sales fell by 51% y/y to EUR 16.5m. Meanwhile technology services top line grew by 20% y/y to EUR 17.2m. However, we note services order intake fell to only EUR 8m in Q3 because of the slow demand for more cyclical modernization projects (the order intake had averaged some EUR 15m in recent quarters). Overall, Q3 order intake increased to EUR 73m from EUR 42m in Q3’18 owing to the Segezha order. We expect Q4 revenue to decline 32% y/y to EUR 37.0m as we see project deliveries down by 47% to EUR 20.0m and services up marginally to EUR 17.0m. We see Q4 EBIT at EUR 3.0m (EUR 3.4m a year ago); this would make Q4 the strongest quarter of the year in terms of profitability, as Raute suggested before.

Our TP of EUR 25 per share and HOLD rating are unchanged

We don’t expect Raute to report meaningful changes to current market environment i.e. the sentiment is still characterized by uncertainty. We expect Raute to guide flat revenue and EBIT for FY ’20; we see Raute’s profitability improving slightly this year as the company is in a relatively good position thanks to the EUR 58m order. Still, Raute’s conservative guidance policy is unlikely to reflect this. We view valuation (6.5x EV/EBITDA and 8.5x EV/EBIT ‘20e) neutral given the market softness. We believe the BoD will propose a dividend of EUR 1.40 per share.

Raute - Market uncertainty continues

31.10.2019 | Company update

Raute’s Q3 missed our estimates, but overall a weak Q3 was as expected due to low order book. Raute sees Q4 a lot stronger, yet when it comes to the wider picture the report didn’t offer us a reason to change our cautious view. We thus reiterate our EUR 25 TP and HOLD rating.

Elevated market risks continue to weigh on order intake

Raute’s Q3 revenue decreased by 30% y/y to EUR 33.7m, and hence EBIT declined to EUR 1.7m from EUR 5.5m. Raute posted Q3 services revenue at EUR 17m, a figure in line with our estimate and an increase of 20% y/y. Raute says certain customers have seen deteriorating prices due to the recent boom in plywood and LVL mill investments and subsequent high capacity utilization rates. Raute sees the market currently polarized in the sense that a good level of demand remains for both large as well as small orders (in addition to services and spare parts demand), whereas activity for mid-sized orders such as mill modernizations is weak. The modernization softness was reflected in the very low EUR 8m (EUR 15m) Q3 services order intake. Elevated uncertainty continues to postpone major investment decisions.

Raute is in a good shape to weather further softening

We don’t make major updates to our estimates following the report. We note Raute expects Q4 to be strongest quarter of ’19 in terms of EBIT, which we now expect at EUR 3.0m. In our view Raute is well-positioned for a cooling market environment due to its strong balance sheet and leading product offering. Next year will be greatly helped by the recently disclosed EUR 58m Russian project delivery. On the other hand, excluding the Segezha order the current EUR 109m order backlog implies only some EUR 50m in orders, a rather soft level. In other words, even if the big order alleviates concerns regarding next year, we want to see pick-up in orders before turning our view more positive.

We see valuation as neutral due to uncertainties

We view Raute’s valuation, at ca. 7x EV/EBITDA and 9x EV/EBIT for ‘19e, as neutral. Valuation on ‘20e multiples could quickly turn attractive should orders pick-up, however visibility on next year’s figures remains limited despite the good groundwork laid by the record order. We reiterate our EUR 25 TP and HOLD rating.

Raute - No changes to an uncertain market

30.10.2019 | Earnings Flash

Raute’s Q3 EBIT, at EUR 1.7m, fell short of our EUR 2.5m estimate due to delayed new order development. Raute continues to comment the market situation in a cautious manner.

  • Raute’s Q3 revenue stood at EUR 33.7m vs our EUR 35.0m estimate. Services revenue was in line with our estimate while project deliveries fell a little short of our expectation.
  • Q3 EBIT was EUR 1.7m whereas we expected EUR 2.5m.
  • Order intake amounted to EUR 73m in Q3 vs EUR 42m a year ago. The figure was greatly helped by the EUR 58m record order the company had disclosed previously.
  • Order book stood at EUR 109m at the end of Q3 vs EUR 121m a year ago.
  • Raute continues to comment the market environment in a cautious manner, citing prolonged negotiations and decision making. Services and spare parts demand remains stable, indicating good mill capacity utilization rates.
  • Raute reiterates existing guidance, expecting both revenue and operating profit to decline compared to previous year.

Raute - A record large order for next year

02.10.2019 | Company update

Raute received a big EUR 58m order to be delivered in 2020, alleviating some of the short-term demand concerns that have clouded the outlook recently. We raise our estimates from 2020 onwards but retain our HOLD rating for now as we wait for more signs of improvement in demand outlook. Our new target price is EUR 25.0 (23.5).

New order more than twice the size of a usual large order

Raute will deliver all machinery and equipment for a greenfield plywood mill to be built in the Kostroma region of Russia. The order, commissioned by Segezha Group, totals EUR 58m and is the largest single order in Raute’s history, a demonstration of Raute’s technological competitiveness and core competence in delivering entire production lines. This is not Raute’s first project delivery for the Russian forestry group. The new project will be delivered during 2020 and the 125,000m3 mill is scheduled to commence operations in the summer of 2021.

We raise our estimates as visibility has improved

Raute says the order will have no impact on 2019 outlook as the company continues to expect both revenue and EBIT to decrease compared to the record year 2018. The EUR 58m new order is very significant in size considering the project value matches Raute’s whole order intake for H1’19 (of which EUR 29m was attributable to project deliveries and the other EUR 29m to services). In other words, while the order is good news for Raute it also highlights the company’s inherent project volume volatility. Raute’s order book, which stood at EUR 72m at the end of Q2’19, covers an exceptionally long period of time as a significant share of deliveries is scheduled for 2020 (and some even for 2021). We adjust our estimates upwards from 2020 onwards. We now expect EUR 149m in ‘20e revenue (previously EUR 128m) and ‘20e EBIT of EUR 11m (previously EUR 9m).

New target price EUR 25.0 (23.5), HOLD rating maintained

Raute’s current EV/EBITDA and EV/EBIT multiples, approximately 6x and 8x respectively, place the company’s valuation on neutral ground in terms of historical averages. We raise our TP to EUR 25.0 (23.5) on the back of our updated estimates yet maintain HOLD rating for now as we wait for more signs of improvement in demand outlook.

Raute - More orders needed

01.08.2019 | Company update

Raute’s Q2 EBIT missed our estimates, but overall picture remains unchanged. Market uncertainty is postponing investment decisions. We adjust our estimates slightly downwards, lower our TP to 23.5 (25.5). Our rating is now HOLD (BUY).

Market uncertainty continues

Raute’s Q2 EBIT was EUR 2.3m, missing our estimate of EUR 2.9m. The miss was due to due to a few projects causing extra delay costs. Revenue amounted to EUR 37.0m vs. our EUR 35.6m estimate (EUR 43.7m in Q2’18). While project deliveries stood at a relatively low EUR 18m (vs EUR 30.7m a year ago), services revenue was EUR 19m, i.e. increasing by almost 50% y/y. Raute held its outlook and repeated the market remains uncertain, with current demand mostly attributable to larger as well as smaller projects, while within mid-sized orders there’s unusual silence. Raute says so far it has only seen investment decisions and negotiations being delayed instead of actual cancellations. Activity concerning potential larger projects remains at a good level, and services demand remains stable.

Order book and intake still healthy, but more is needed

Raute’s Q2 order intake, at EUR 26m, declined only slightly compared to the EUR 28m figure a year earlier. Considering Q2’19 did not include any new major capacity projects the figure could even be described as relatively strong. The current EUR 72m order book is clearly below the EUR 120-140m record 2018 highs. The book covers an exceptionally long period of time as a significant share of deliveries is scheduled for 2020 (and some even for 2021). Therefore, Raute needs clear pick-up in orders during H2’19 to reach our previous FY 2019 revenue estimate (EUR 158m). While larger orders may materialize shortly (e.g Russia), we adjust our FY 2019 estimates downwards to reflect the increased uncertainty. We now expect for 2019E EUR 148m in revenue and EUR 10m in EBIT (6.8% margin).

European revenue exposure set to decline due to low orders

Geographical sales split didn’t change much during the second quarter as Europe accounted for roughly 45% of revenue, Russia for 25% and North America ca. 15%. While the split has remained steady compared to last year, Europe’s share is bound to decline significantly in the coming quarters due to much lower order intake during 2019. So far this year European order intake has been a fraction of previous year’s volume (EUR 9m in H1’19 compared to EUR 49m in H1’18). Russia has developed strong, almost doubling order intake in H1’19 (EUR 26m) compared to year earlier (EUR 14m), while North American orders have been stable, increasing by a couple of million to EUR 12m. In other words, Russia and North America are set to generate major portions of revenue next year.

Valuation is low but earnings development uncertain

On our revised estimates Raute trades ca. 4x EV/EBITDA and 6x EV/EBIT ‘19e (compared to their respective 6x and 8x historical averages). Due to uncertain earnings development, we see lower multiples justified. We revise our TP to reflect our slightly lower estimates; our TP is EUR 23.5 (25.5); rate HOLD (BUY).

Raute - Project delays burden EBIT margin

31.07.2019 | Earnings Flash

Raute’s EUR 37m Q2 revenue topped our estimate slightly, helped by strong services sales. Nevertheless, operating margin remained on the weak side due to the cost burden caused by a few delayed projects. Order book stands some 40% lower than a year ago, however it now spans an exceptionally long period.

  • Q2 revenue amounted to EUR 37.0m vs our EUR 35.6m estimate (EUR 38.2m consensus).
  • Order intake was EUR 26m compared to EUR 28m a year ago. Order book stood at EUR 72m at the end of Q2 (compared to EUR 127m a year ago). Raute says a significant proportion of the order book is scheduled for 2020 (and a small amount for 2021) i.e. the order book is stretched exceptionally long.
  • Q2 operating profit was EUR 2.3m vs our EUR 2.9m estimate (EUR 2.7m consensus). Operating margin therefore amounted to 6.3% vs our 8.1% expectation (7.1% consensus). A few delayed projects lead to extra costs.
  • Raute says current demand is focused on major new capacity projects as well as services and small-scale improvements, whereas the share of mid-sized projects is exceptionally low and causes fluctuations in order intake. All in all, market uncertainty has increased, causing delays in project negotiations.
  • Raute changed its FY 2019 guidance on Jun 25, expecting revenue and operating profit to decrease compared to previous record-high year.

Raute - Market uncertainty justifies caution

29.07.2019 | Preview

Raute reports Q2 results this week, on Wed, Jul 31. The company downgraded its FY 2019 guidance recently, on Jun 25. Raute had previously expected flat revenue and operating profit for FY 2019, but now expects revenue and EBIT to be lower than last year. We keep our target price at EUR 25.5 per share; our rating is now BUY (HOLD).

We expect strong Q2 EBIT margin due to inventory timings

Even though Raute recently moderated its guidance for FY 2019, we expect Q2 to have been quite strong in terms of operating margin; Raute’s Q1 operating margin amounted to a relatively weak 6.3% due to unfavorable timing of certain inventory-related line items, which the company said were some EUR 0.5- 1.0m in magnitude. We therefore expect Q2 operating margin at 8.1% (vs 7.3% a year ago and 6.3% in Q1). Our EUR 35.6m revenue and EUR 2.9m EBIT estimates for Q2 compare to the respective EUR 38.2m and EUR 2.7m consensus estimates.

Lowered FY 2019 outlook as project deliveries were delayed

Raute lowered guidance on Jun 25 due to delayed schedules of certain challenging project deliveries and postponed negotiations concerning some larger orders not yet closed. Upon lowering its outlook, Raute said it continues to view the operating environment stable and sees healthy activity related to potential mill capacity expansion projects. However, Raute also cited elevated uncertainty due to increased share of smaller customers, whose decision-making is more unpredictable. We expect 2019 revenue to decrease by a double-digit percentage to EUR 158m (EUR 156m consensus) and EBIT to decline to EUR 11m (same as consensus) due to project uncertainties and slower order book development (EUR 84m Q1’19 vs. EUR 142m Q1’18).

Low multiples warranted due to outlook uncertainties

Raute trades around 4x EV/EBITDA and 5x EV/EBIT on our 2019 estimates. We leave our estimates unchanged for now and retain our EUR 25.5 target price. Our new rating is thus BUY (HOLD) as Raute’s share price has declined since our previous update.

Raute - Moderated guidance for 2019

26.06.2019 | Company update

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.

Raute - Profitability drop due to inventories

06.05.2019 | Company update

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.

Raute - Sales beat, operating margin lower

03.05.2019 | Earnings Flash

Raute managed a 17% y/y top line growth in Q1. Order intake remained at a healthy level considering there were no major mill-scale orders. However, EBIT fell in both absolute and relative terms due to some exceptional cost items (while the comparison period also included some positive items).

  • Q1 net sales amounted to EUR 41.3m vs. our EUR 32.3m estimate.
  • Order intake was EUR 32m compared to EUR 68m a year ago. The orders mainly consisted of smaller items. Technology services orders grew strongly. Order book totaled EUR 84m (vs. EUR 142m a year ago).
  • Operating profit stood at EUR 2.6m vs. our expectation of EUR 3.5m. Exceptional cost items burdened operating profit.
  • The company managed an operating profit margin of 6.3%, whereas we expected 10.9%.
  • Raute maintains its 2019 outlook, expecting 2019 net sales and operating profit at a similar level compared to the previous year. Overall, activity has remained at a good level.

Raute - Optimistic guidance and dividend

14.02.2019 | Earnings Flash

Raute already disclosed in January that 2018 sales and EBIT would be higher than previously expected. Raute confirmed the previously announced strong numbers. The proposed dividend came in slightly above our estimate, while the company expects flat figures for 2019. Our stance for 2019 and beyond has been more cautious as the market has been going through a very favorable cycle.

  • Q4 sales amounted to EUR 54.2m vs EUR 39.4m a year ago.
  • Q4 operating profit stood at EUR 3.4m vs EUR 3.1m a year ago.
  • Q4 order intake was EUR 28m vs EUR 60m a year ago.
  • Order book amounted to EUR 95m vs EUR 110m a year ago.
  • Raute proposes that a dividend of EUR 1.40 (EUR 1.25) per share be paid for financial year 2018. The amount was slightly above our EUR 1.35 per share estimate.
  • Guidance: Raute expects 2019 net sales and operating profit to stay at similar levels compared to 2018. The company cites high order book and sustained brisk demand.

Raute - Higher sales, lower order intake

17.01.2019 | Preview

Raute announced 2018 sales and EBIT to be higher than previously expected. The company reported 2018 sales at EUR 181m and EBIT at EUR 14.9m. Our respective estimates previously stood at EUR 171m and EUR 15.1m. The higherthan- estimated sales were the result of strong execution throughout the entire delivery chain during the last months of the year. Services sales were also higher than estimated. However, the order book amounted to EUR 95m vs. our estimate of EUR 114m.

Higher revenue negated by lower margin and order intake

Stronger than expected Q4 project deliveries (EUR 39m vs. EUR 33m in the previous quarter, according to our estimates) pushed the company to book a record quarter. On the other hand, the released figures reflect a lower EBIT margin on project deliveries. We estimate the Q4 project deliveries EBIT margin at below 5%, while previously the business has averaged margins above 6%. It should be noted that the lower margin may be due to possible conservative assumptions by the company regarding the unfinished projects. Whereas Q4 sales came in EUR 10m higher than our expectations, the order intake fell short by EUR 9m (at EUR 28m vs. our estimate of EUR 37m).

We maintain HOLD with a TP of EUR 27.0 (27.5)

All in all, we don’t see material changes in the company’s operating environment. We continue to expect negative sales and EBIT development for the next couple of years following a very strong investment cycle by Raute’s customers. Our estimates for 2019 sales and EBIT remain at EUR 149m and EUR 12m, respectively. We make no significant changes to our longer-term estimates and maintain our HOLD rating, lowering our target price as peer valuation multiples have declined during the recent months. In our view an EBIT level of around EUR 10m and EV/EBIT multiple of 8x remain the relevant yardsticks for long-term over-the-cycle valuation.

Raute - Initiating coverage with HOLD

22.10.2018 | Company report

In the last 3 years, Raute’s strong performance has been largely driven by European investment activity. We estimate that the activity normalizes in 2019, which reflects negatively on Raute’s net sales and EBIT-% in 2019-2020. Meanwhile, we estimate that the share of technology services grows and drives Raute’s long-term growth and profitability. We initiate coverage of Raute with a HOLD rating and a target price of EUR 27.0 per share. The rating and target price are based on Raute’s historical valuation and our DCF model.

Recent growth driven by project deliveries to Europe

In 2017, 67% of Raute’s net sales was project sales which are highly cyclical and drive Raute’s EBIT-% together with fixed costs. During the last 3 years, Raute’s sales and EBIT have hit new records, largely driven by European investment activity. We estimate that order intake from Europe normalizes in 2019 since growth in the European construction output is estimated to decelerate in 2018. As a result, we estimate y/y declining net sales and EBIT-% in 2019 and 2020.

We estimate that tech services drive long-term growth

In 2021-2023, we estimate that Raute’s net sales grow at a CAGR of 3.6%, driven by growth in technology services (5.0% CAGR). Raute has not disclosed the profitability of technology services but, based on peer data, we estimate that the increasing share of services supports Raute’s long term EBIT-%. In contrast, we estimate that project sales grow at a CAGR of 2.5%, limited by slow GDP growth in developed economies and challenging competitive environment in emerging economies.

HOLD with a target price of EUR 27.0 per share

In our valuation approach, we emphasize 2020 estimates since we see that they represent Raute’s performance at a neutral stage of the investment cycle. On our estimates, Raute’s 2020E EV/EBIT amounts to 9.7x. This is clearly above the 2012-2017 median trailing 12m EV/EBIT of 7.0x and limits valuation upside, even though the growing share of technology services reduces volatility and risks. Meanwhile, our DCF model implies EUR 28.0 per share, assuming a 6.5% terminal EBIT margin.

Raute Q220 interview with CEO Tapani Kiiski

Raute - Q2'20 video interview with CEO Tapani Kiiski

Raute Q419 video interview with CEO Tapani Kiiski full

Raute - Q4/19 video interview with CEO Tapani Kiiski

Raute Q319 interview with CEO Tapani Kiiski

Raute - Q3/19 video interview with CEO Tapani Kiiski

Raute Plywood process 29102019

Raute - Plywood process video 29.10.2019

Raute LVL process 07102019

Raute - LVL process video 07.10.2019

Raute company presentation 12082019

Raute - Company presentation

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Raute company presentation 12082019

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Raute's net sales will decline while operating profit will decrease clearly in 2020 compared to 2019

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