Plywood and LVL manufacturing solutions
Raute is set to complete its equity injections during the next few weeks. The terms didn’t include very significant news, whereas the recent French order was a small positive.
Raute adds EUR 18m to its equity base
Raute proceeds with its capital raising plans as expected. The EUR 18m sum includes a perpetual junior loan of EUR 4m which Raute can repay after 3 years. The holders also have a conversion right, at a strike of EUR 13.50 per share, which extends to 4 years. The loan initially carries a coupon of some 11% over the first 3 years, after which the spread jumps by 500bps. Raute recently completed a directed issue of EUR 6.4m, while the EUR 7.5m rights issue further lifts share count by 20%. We calculate the value of a right at EUR 0.575 per share.
Three large orders drive results next year
Raute has recently secured EUR 125m in orders attributable to three large projects. Deliveries begin next year, and we estimate close to two-thirds of the value to be attributable to FY ’24. The EUR 45m French greenfield LVL order went to Europe, as expected, but the destination was a lot more in the west than we expected and hence Raute should still have more long-term large order potential in countries such as Finland, Poland and the Baltics. We leave our FY ’23 estimates unchanged, but now estimate next year’s growth rate at 25%. The Q1 report highlighted smaller order demand as a point of softness, and its potential extension casts some uncertainty around the pace of improvement, but next year is bound to see significant growth in any case. Recent years’ challenges ate into the balance sheet, but now improving top line and profitability as well as the capital raise have given Raute the strength to work on long-term strategic plans, including some potential M&A which would be most likely to add capabilities for the Analyzers segment.
Ex-rights a minus, the large French LVL order a plus
Raute is valued at 6x EV/EBIT on our FY ’24 estimates, which we don’t view too challenging as our EUR 8.5m EBIT estimate remains far short of long-term potential. The ex-rights date detracts from the share price, however Raute has also signed the French order since our latest update (although it was referred to earlier its confirmation details still delivered a positive surprise). We retain our EUR 12.0 TP and BUY rating.
Raute’s Q1 was mostly better than we estimated. Large orders have on the one hand improved outlook, while on the other there seems to be more uncertainty around Services and smaller orders going forward.
Q1 better than expected, but haze around smaller orders
Q1 revenue fell 11% y/y to EUR 37m but beat our EUR 32m estimate. The EUR 5.5m in Russian revenue, due to deliveries’ commissioning tasks, was a bit larger than estimated. Raute has also gone through other initiatives, besides exiting Russia, such as the restructuring of Chinese operations and building an ERP system (the system will soon be adopted and may cause some issues in Q2). The two together cost EUR 0.9m in Q1, but Raute’s EUR 0.9m EBIT still came in higher than our EUR 0.3m estimate. The report showed softness in terms of small Wood Processing orders; in our view the lack of single line orders reflects market uncertainty as well as cooling after previous year’s high tally. In this sense the outlook for smaller and larger orders has now reversed; the picture is mixed as there’s still good automation & modernization demand while Services outlook has slowed.
Big orders drive growth now; Analyzers key to strategy
Raute’s outlook for the coming years has solidified a lot in a short period of time as the company has signed two projects worth a combined EUR 80m and to be delivered over the same period starting next year. Raute may yet sign a third large order worth EUR 45m and should still be able to deliver it roughly at the same time. Raute’s strategy aims to capitalize on its leading wood manufacturing technology position; only the high-end of the Chinese market continues to interest Raute whereas the Analyzers segment should act as a spearhead and drive also Wood Processing orders as well as Raute’s technology leadership.
Valuation hasn’t changed much as downside seems limited
We make only rather small positive upward revisions to our profitability estimates even though large projects have helped lift outlook for the coming years and Q1 margins proved better than we expected. Larger orders carry lower margins while there’s a risk Services and small order outlook may continue to soften. The big picture in terms of valuation, however, hasn’t changed much. Raute is valued some 19x and 6.5x EV/EBIT on our estimates for this year and next. Our TP is EUR 12.0 (11.0); retain BUY rating.
Raute’s Q1 results came in clearly better than our estimates. Top line fell, as expected, but less than we had estimated, while profitability remained relatively strong despite the lower revenue. Only Q1 order intake showed some softness relative to our estimate, but this may have mostly to do with the large projects the company has been signing lately.
Raute reports Q1 results on Apr 28. Large projects solidify outlook, while the new strategy hints at growth ambitions particularly in Americas and within Services & Analyzers.
We leave our FY ’23 estimates basically intact
We expect Raute’s Q1 margins to have recovered a bit from the weak comparison period, despite lower top line, as inflation should no more be such a problem for Wood Processing while Services & Analyzers should have still seen growth. We estimate group revenue at EUR 32m and hence EBITDA at a modest EUR 1.5m. Continued earnings recovery over the year is a priority, but attention also focuses on growth outlook for the coming years.
We see Americas and Services & Analyzers as focus areas
Raute will deliver EUR 50m in equipment to Uruguay starting next year. We view the destination a positive surprise, as Raute hasn’t delivered big LatAm projects since ‘12. We update our FY ’24 revenue estimate to EUR 155m (prev. EUR 140m) and raise our margin estimates by some 50bps, which we view a conservative assumption. Raute’s pipeline also includes another slightly smaller project, yet to be signed, which we expect to be destined to Europe. Raute’s new long-term targets set the ambition high, especially in terms of growth as the EUR 250m top line target for FY ’28 implies double-digit CAGR from this year on (compared to ca. 3-4% CAGR seen for customer end-demand). Europe will remain a key market, however we would expect Raute to pursue a lot more growth within Americas as its Wood Processing market shares there are lower. We also view Services and Analyzers as particular spearheads in this sense.
Downside appears limited relative to long-term potential
Raute may add technology edge via M&A, but such deals have historically been small and hence we would expect organic execution to remain of great importance. The directed issue added ca. 20% to share count, and thus the EV/EBIT multiple has respectively increased to 20.5x on our FY ’23 estimates. The multiple remains a modest 6.5x on our FY ’24 estimates; our margin estimates appear conservative while there’s still a rights issue to come, plus maybe a junior loan. In our opinion it’s early to give much weight for the new strategy’s targets, however we still view downside limited whereas long-term potential is considerable. We retain our EUR 11.0 TP and BUY rating.
We make some cuts to our estimates after Raute’s Q4 report, but the bigger picture remains largely unchanged.
Bottom line and new orders a bit soft, but no major news
Raute’s EUR 45.7m Q4 revenue grew 4% y/y and was clearly above our EUR 38.0m estimate. The EUR 0.5m Q4 EBIT was soft relative to our EUR 0.7m estimate, despite the high revenue figure, as inflation still limited projects’ profitability; Services revenue continued to grow y/y, but there were changes in mix and certain delivery challenges. The EUR 28m Q4 order intake lacked modernization orders and was soft relative to EUR 36m estimate, however there seem to have been no significant negative changes in market demand since Q3.
We revise our FY ’23 revenue estimate down to EUR 133m
Raute’s earnings recovery path continues without major surprises, however we revise our estimates down as Q4 order intake was lower than we expected; the company begins the year with slightly lower order book than we estimated. European plywood investments (particularly within birch) should remain high, but we estimate European and North American revenues to remain roughly flat this year (both almost doubled in FY ’22); there is more scope for growth in Latin America and Asia-Pacific, but these markets have traditionally been more marginal for Raute. We likewise expect the Services and Analyzers businesses to remain stable in FY ’23, whereas the missing Russian revenue could leave Wood Processing top line down by 20%.
We now estimate FY ’23 EBIT at EUR 2.5m (prev. EUR 5.3m)
Raute’s guidance doesn’t seem challenging from profitability perspective as the minimum implies comparable EBITDA of only ca. EUR 6m (Raute’s comparable EBITDA amounted to EUR 8.7m in H2’22); further growth this year in Europe and North America within smaller equipment orders may not be that easy but a larger (European) order, should it materialize in early FY ‘23, could add a significant amount of revenue and thus help Raute specify its guidance upwards. Raute’s high operating leverage works both ways, but in our view comparable EBITDA of around EUR 8m should be achievable this year even if revenue declines by some 15%. The 17.5x EV/EBIT multiple, on our updated FY ’23 estimates, is not low but acceptable given earnings potential in the long-term. We retain our EUR 11 TP and BUY rating.
Raute’s Q4 revenue was clearly higher than we estimated, whereas EBIT was on the soft side especially considering the strong top line. The EUR 28m in new orders was also softer than we expected. Raute revealed a new reporting structure and guides FY ’23 revenue to be above EUR 130m and comparable EBITDA margin of above 4%.
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.
Raute’s Q3 figures were encouraging, and although profitability may still be muted for a few quarters we view valuation conservative enough to leave adequate upside.
Some encouraging profitability development
Raute’s Q3 revenue grew 10% y/y to EUR 42m, above our EUR 34m estimate. The beat was due to both projects and services, driven by Europe, and in our view the high EUR 19m service revenue also helped EBIT back to black (EUR 1.4m vs our EUR -0.3m estimate) as inflation has been more of a problem on the project front. Inflation eased a bit, but we believe Raute has also learned to better price in inflation within projects over the past year. The unwinding of the Russian book has had an adverse effect on working capital, hurting cash flow, but the issue is by nature temporary and Raute’s overall workload situation is not too bad despite the fact that Russia was an important market.
Top line may not grow next year without larger mill orders
Raute booked EUR 35m in new orders for the quarter, compared to our EUR 38m estimate. Services orders were soft compared to our estimate as modernization orders declined from the recent high figures, but we find it encouraging Raute has managed to gather solid order amounts for many quarters in a row without any larger mill orders. Smaller orders from North America are especially helpful at this point, while there’s a bit more uncertainty around Europe, the current largest market, going forward. There’s a need to add capacity in order to fill the gap left by the end to Russian imports. It’s unclear how this trend continues to play out in the short-term, but demand for large mill projects remains in place along the Eastern flank of Europe. Latin America is also showing signs of improvement, although it’s likely to remain a smallish market at least in the short-term.
We see more upside than downside from this point forward
Q4 is in our view still unlikely to be a great quarter in terms of profitability, but overall development appears favorable going towards next year, when the EUR 4-5m in cost efficiency measures should materialize, in addition to the benefits of the ERP project. Raute is valued around 6x EV/EBIT on our FY ’23 estimates, which we don’t view a challenging level considering our EUR 5.6m EBIT estimate is still far from long-term potential. We update our TP to EUR 11 (9); our new rating is BUY (HOLD).
Raute’s Q3 top line and profitability topped our estimates. Inflation pressures eased up a bit while Western demand remained high.
Raute reports Q3 results on Oct 21. We expect gradual improvement amid inflation and shift to Western markets.
Cost inflation will continue to burden Q3 results
Raute’s Q2 bottom line was burdened by some EUR 11m in one-off items mostly related to Russian orders, in addition to which cost inflation was a bigger challenge than we had expected. Q3 figures should be clear of exceptional provisions, but we expect inflation will still be a major limiting force on profitability even if Raute has learned to better anticipate cost issues since late last year. We estimate EUR 34m top line and EUR -0.3m in EBIT for Q3, which implies q/q improvement but clearly below the y/y comparison period. Q2 report saw a high level of EUR 40m in order intake as a bright spot; there have now been a few quarters with such healthy order levels in a row without any larger projects, and we expect EUR 38m in Q3 order intake.
Orders have developed favorably even without larger ones
Small order demand should have remained at a good level especially in North America, while Europe is now Raute’s most important market. European demand doesn’t currently appear quite as strong as in America, except for the Baltics and Eastern Europe, but Raute’s order book should remain above EUR 100m going into next year. We thus estimate FY ’23 revenue roughly flat at around EUR 140m. In our view such a workload should be more than enough to help the company reach positive EBIT next year, especially given the fact that Raute has recently implemented cost savings measures. Raute could reach positive EBIT already in Q4’22 assuming services demand remains high.
Downside is limited, but upside still waits a few triggers
We estimate some EUR 4m in FY ’23 EBIT, which we believe Raute should be able to achieve even if top line remains modestly below EUR 140m. Such figures would still fall clearly short of longer-term potential, and the 7.5x EV/EBIT valuation on our FY ’23 estimates doesn’t seem very challenging. Any changes to Raute’s competitive positioning appear unlikely, and hence downside should be limited given the current low expectations. The upside potential, however, is likely to be triggered only once Raute has demonstrated results after the recent burst of inflation as well as continued solid demand in Western markets. Our new TP is EUR 9 (11); we retain our HOLD rating.
Raute has now largely cleaned its Russian exposure and Western orders are materializing at a good pace, however H2’22 profitability will still be far from satisfactory.
New Western orders will henceforth help profitability
Q2 top line fell 16.5% y/y to EUR 29.6m vs our EUR 38.0m estimate. The shortfall was due to projects, in particular Russian orders, whereas services figured above our estimate. The war led Raute to temporarily pause operations and assess the Russian order book, while the Chinese lockdowns induced production transfers. One-off issues led to EUR 11m in items, but cost inflation also affected the results more than we had estimated and thus Q2 EBIT was EUR -15.1m vs our EUR -10.7m estimate. Bottom line will now improve but we expect at least Q3 EBIT to stay negative due to inflation. Meanwhile services profitability is not suffering that much, in addition to which Q2 order intake amounted to EUR 40m vs our EUR 30m estimate. Demand has held up and there were again no large orders.
We would expect positive EBIT early next year at the latest
Order intake in Europe and Asia, excl. China where the situation is yet to normalize, drove the figure above our estimate. North American orders were soft relative to our estimate after high Q1, but demand there is strong. There’s more uncertainty around European demand, but the Baltics and Eastern European countries are bright spots. The overall outlook and the EUR 104m order book is not bad considering it has now been mostly cleaned of Russia while Raute has been able to book EUR 40m in new quarterly orders even without any large ones. Smaller order demand related to modernization and automation remains high on customers’ agenda. Raute’s outlook for the coming years could improve with larger orders, however EBIT will stay at a modest level for several quarters to come. Investments in R&D remain high, while Raute has a program to improve profitability.
High uncertainty but long-term multiples are undemanding
We make minor revisions and still expect positive EBIT for FY ’23, although it looks set to be a modest one. Raute trades 9x EV/EBIT on our FY ’23 estimates; next year’s EBIT is likely to stay far below potential, and valuation isn’t challenging in the long-term context. There’s however still much uncertainty and hence we view valuation fair. We retain our EUR 11 TP and HOLD rating.
Raute’s Q2 revenue and EBIT were clearly worse than we expected, however order intake was well above our estimate. It is always unclear how well single quarter order intake extrapolates, but if new orders remain near the EUR 40m level seen in Q2 Raute will be able to fill the gap left by Russian business relatively quickly.
Raute reports Q2 results on Jul 22. We make downward revisions to our estimates due to the latest update as well as the deterioration in wider economic conditions.
Profitability is set to improve in H2
Raute’s Q2 bottom line will be burdened by big one-offs, including EUR 8-9m in write-downs related to Russian projects and receivables as well as some EUR 1m in restructuring costs such as severance. We thus revise our Q2 EBIT estimate down to EUR -10.7m (prev. EUR -1.4m). H1 results would have been poor even without such items due to the inflation which affects already signed orders. Raute expects profitability to improve in H2, which we do not find a big surprise. Raute is also finding ways to improve margins and lower costs; results should already materialize this year and be even better visible in 2023 especially if Western demand continues to develop favorably.
Western orders continue to pick up after slow years
Raute’s focus tilts to West, especially after the Russian orders have been delivered. North American orders came in at a high level of EUR 15m in Q1, but the level may not extrapolate that well even in a more favorable economic backdrop let alone in a souring one. We still expect the American business continues to pick up as the market was cool even before the pandemic, however we trim our estimates for new orders. Similar logic applies to Europe as the local market softened considerably towards 2019 but showed marked increases in orders last year, including a large Baltic project. Additional large European orders could improve outlook, but it’s difficult to estimate the materialization and timing of such projects especially now that uncertainty tends to undermine plans for larger investments. Our FY ’22 revenue estimate is intact at EUR 146m, but we cut our FY ’23 estimate to EUR 141m (prev. EUR 152m). We cut our FY ’23 EBIT estimate to EUR 4.8m (prev. EUR 6.2m).
Valuation not very challenging, but outlook a bit unclear
In our view Raute retains its position as the global leader within the niche of plywood and LVL machinery, particularly at the upper end of the market. The current valuation of 8x EV/EBIT, on our FY ’23 estimates, is not all too challenging, however there’s still a lot of uncertainty around the next few years’ profitability levels. We revise our TP to EUR 11 (14); our rating is HOLD.
Inflation hurt Raute’s Q1 EBIT more than we estimated, but the longer-term picture wasn’t changed all that much.
Cost inflation was a greater challenge than we expected
Raute Q1 revenue grew 67% y/y to EUR 41m vs our EUR 34m estimate. Both projects (EUR 26m) and services (EUR 15m) came in higher than our respective EUR 21m and EUR 13m estimates. Raute delivered projects according to plan, without any major component issues, and recognized EUR 14m in Russian revenue (vs our EUR 12m estimate). Profitable execution in certain larger projects was challenged by cost inflation more than expected and the EUR -1.5m EBIT didn’t meet our EUR 0.2m estimate. The EUR 36m order intake topped our EUR 29m estimate as North American orders were EUR 15m, compared to our EUR 7m estimate, while the EUR 13m European order intake was close to our estimate. Modernizations contributed a significant share of order intake. Inflation may no longer be such a great challenge in the coming quarters, but Raute is not yet able to provide guidance for the year as there remains too much uncertainty around the delivery of the EUR 78m Russian order book.
Some encouraging signs on Western orders’ outlook
We now estimate EUR 38m Russian revenue for this year. We expect no big losses from the Russian deliverables, but neither do we estimate great profitability for the coming quarters. Raute’s established Western footprint helps it to withstand the loss of Russia; North America is a promising source for many additional smaller orders, including modernizations, while Europe could support larger mill projects in the years to come. The long-term demand outlook for Raute’s technology is sound as before, but the short-term capex picture is muddled by the war.
Western order levels will drive valuation over this year
We raise our FY ’22 revenue estimate to EUR 146m as we expect Europe, North America and Russia to contribute more than we previously did. Western orders will be a driver in the coming quarters as their level should shore up the following years’ revenue at least for a certain portion of the hole left by Russia. We expect no EBIT from Raute this year, but ca. EUR 6m could be possible next year if Western orders stay high over the course of FY ’22. Raute is then valued 7x EV/EBIT on our FY ’23 estimates. Our new TP is EUR 14 (15) as we retain our HOLD rating.
Raute’s Q1 revenue and order intake were above our estimates, however inflation had a larger negative effect than we had expected as EBIT clearly missed our estimate.
Raute reports Q1 results on Apr 29. We continue to expect only break-even EBIT for this year. In our view Europe and North America will now be Raute’s focus markets.
Russia’s absence will be felt especially in the short-term
Raute will deliver its previously signed Russian orders to the extent feasible, case by case, and the company will not sign any new Russian orders for now. Raute has a staff of about 40 in Russia, but other than that no local assets. Raute is therefore not precisely exiting Russia, however we believe the Russian business will gradually shrink to zero and stay there for the foreseeable future. Russia has historically been a very important market for Raute as orders from the country averaged more than EUR 50m in recent years and there was good momentum until the end of last year; the Russian order intake amounted to EUR 79m in FY ’21 and we had estimated a similar amount of Russian revenue for this year. We cut this estimate down to some EUR 30m after the invasion. It remains unclear where the figure will land in the end, but we now expect around EUR 130m revenue for Raute vs the roughly EUR 175m estimate before the war.
Western markets’ strength is the best short-term remedy
In our view Europe and North America are the markets which could best help make up the Russian shortfall in the short-term. These established markets have historically belonged to the core of Raute’s strategy, and their order intakes also picked up last year after a few slower years. These markets’ strength could prove our short to medium term estimates too low. Latin America and Asia, especially China, also have long-term potential. Raute’s competitive positioning should in any case remain favorable, but we continue to see lots of uncertainty around financial performance and hence it’s hard to view current valuation particularly attractive.
We consider current valuation pretty much fair
In our view Raute’s financial profile hasn’t been altered much in the sense that the company should still be able to achieve EUR 10m EBIT with some EUR 150m revenue. Current valuation is cheap relative to this potential, but risks are related to e.g. Western orders’ strength in the short and medium term. Raute is now valued around 6x EV/EBITDA and 9x EV/EBIT on our FY ’23 estimates. We retain our EUR 15 TP and HOLD rating.
Raute withdrew its guidance for the year due to the large Russian order book exposure. We downgrade our estimates.
Others can’t make up the loss, at least in the short-term
The most acute uncertainty stems from the sanctions, including payment bans, and their effect on Russian deliveries. Russia was 39% of Raute’s FY ’21 order intake and 49% of revenue, an extension on the previous years’ similar high figures. Raute has in the past done good Russian business, without direct ruble exposure, despite the infamously stagnant economy. There are no other risk exposures, like major assets, other than the orders already booked. The Russian economy is to be decimated along with the ruble in the short and medium term while long term outlook remains grim with no historical precedent. Hyperinflation is imminent and many Russian customers will be unable to invest. We believe Raute’s Russian orders will begin to recover sometime in the future, but this may take long. In our view a recovery to previous levels might not happen very fast even with a more comprehensive regime and societal change, and such a scenario is on the rosy side. Other markets could help to shore up the loss of Russia, e.g. Europe has recently developed well, but at least some of the economic trouble may spill over.
We now downgrade only our Russian estimates
We have made changes only to our Russian revenue and order estimates. We previously estimated EUR 49m Russian order intake and EUR 79m revenue for this year. We cut these to respective EUR 14m and EUR 32m figures, noting a lot of uncertainty around the exact levels. It’s early to say much about how the crisis will affect Raute’s other customers, but Western stagflation is one prospect. We expect roughly break-even EBIT.
Potential is still high, but so is the present uncertainty
Raute’s valuation remained modest before the invasion as inflation was a major source of uncertainty. In our opinion no very useful peer multiples were available for Raute before the war, and this is now true even more so. Raute is valued ca. 6x EV/EBITDA and 9x EV/EBIT on our FY ’23 estimates, not challenging levels but the environment is extraordinary. Long-term potential is significant as Raute remains the leading player in its niche, however we consider the valuation neutral given the circumstances. Our new TP is EUR 15 (22); rating HOLD (BUY).
Raute’s Q4 report didn’t provide that many news as recent profitability challenges are familiar. Demand stays high, but inflation means H1’22 EBIT is to remain well below potential. We continue to expect gradual improvement.
Results will improve this year (and next)
Raute’s Q4 revenue grew 13% y/y to EUR 44m, while EBIT was EUR 0.5m vs our EUR -0.6m estimate; the gap was due to the allocation of cloud-based IT project costs, which were spread retroactively over many quarters. Raute’s Q4 EBIT was still a far cry from potential, but order momentum continued stronger than we expected and even Raute was surprised by the EUR 50m in Q4 orders. Q1 orders have remained robust, however not quite as high as in Q4, and we expect the figure to top EUR 30m. Raute can meet the current level of demand, but delivery times have naturally been prolonged. Raute guides improving EBIT, but various factors, including inflation, will make the precise gradient hard to gauge. The IT project also continues to burden short-term results yet will contribute to EBIT going forward.
Inflation will still burden near-term results
We make no significant changes to our estimates; we expect Raute to reach around 5% EBIT margin this year. H1’22 EBIT will still suffer from inflation as the orders signed earlier materialize, but the situation should improve somewhat throughout the year as the order book rolls forward and so catches up with higher component prices. We revise our FY ’22 EBIT estimate to EUR 8.6m (prev. EUR 9.0m), while our new FY ’23 estimate is EUR 11.3m (prev. EUR 11.0m). The inflationary environment’s precise impact on the order book’s unfolding remains to be seen, but in our view the current active order level means EBIT is set to improve for at least a few years.
We retain our EUR 22 TP and BUY rating
Raute’s valuation remains undemanding, around 5-6x EV/EBITDA and 6-8x EV/EBIT on our FY ’22-23 estimates, and in our view some caution is in order considering the uncertainty inflation imposes on near-term results. Yet we believe Raute is poised to again reach EUR 10m EBIT in the coming years. That mark would imply only around 6% EBIT margin, a level Raute has managed to top with some EUR 150m annual revenue, while current demand in our view can support a top line EUR 20-30m higher than that.
Raute’s Q4 figures didn’t include that many surprises as the company had already disclosed some preliminary info on FY ’21 results. The EUR 50m order intake was nevertheless a positive surprise considering Raute booked no big orders during the quarter.
Raute reports Q4 results on Fri, Feb 11. Last year was another gap in terms of profitability, but Raute has managed to stack up a record-high order book in the past year or so. We make some estimate revisions but continue to expect steep earnings growth for this year and beyond.
Q4 results were still burdened by various factors
Raute gave preliminary info on FY ’21 results, according to which EBIT remained negative. A large part of this negative revision was due to the agenda decision on cloud-based IT systems, which dictates Raute to expense EUR 2.9m of costs associated with a project capitalized earlier. EUR 2.0m will be booked for FY ’21 and EUR 0.9m retroactively for FY ’20. The booking decision is not a major issue from financial performance standpoint, but Q4 figures were also burdened by certain problems of varying acuteness, including infections which halted the main production plant’s operations. Labor issues exacerbated the problem during a busy season, and component availability challenges reduced top line while price inflation weakened EBIT.
We expect improving EBIT over the year and beyond
Raute’s order book reached a record EUR 150m in Q3 and hence the company is poised to turn a profit again this year. Just how much Raute’s profitability will improve in FY ’22 is by far the most important question because there’s not that much to discuss with respect to the adequacy of current demand and workload. Raute’s business model does not make very specific guidance practical and so we believe Raute will at this point guide only improving profitability. We would be surprised by any stronger wording this early in the year. We have made only relatively small revisions to our estimates. We now estimate FY ’22 revenue at EUR 164.0m (prev. EUR 162.2m) and EBIT at EUR 9.0m (prev. EUR 10.0m). This represents a steep gain from last year yet still well short of the company’s long-term potential.
Earnings multiples appear by no means demanding
Raute trades at multiples of some 6.0-7.5x EV/EBITDA and 8.5-10.5x EV/EBIT on our FY ’22-23 estimates. Raute is the leader in a cyclical niche and so there aren’t that relevant peers, but the multiples are low relative to Nordic capital goods names at a time when Raute’s profitability is expected to remain subdued. Our TP is now EUR 22.0 (26.5); we retain our BUY rating.
Raute’s profitability already improved. There’s uncertainty as to how much more margins will improve in the short-term, but we remain confident Raute’s positioning is favorable while the next expansion cycle has now begun.
Still shy of long-term profitability potential
Q3 top line was EUR 38m vs our EUR 36m estimate. Russia drove projects’ 28% y/y growth, while services grew 50% y/y from a low comparison base. Raute has booked many modernization orders in recent quarters and the pace didn’t falter, in fact Q3 modernization orders helped services’ intake to a record high of EUR 21m. EBIT improved to EUR 1.9m, vs our EUR 1.4m estimate, a reasonable level but still short of long-term potential. Other operating costs remained high, at EUR 4.6m, as Raute continued to invest in R&D, digitalization, and marketing. These efforts should help Raute’s emerging markets presence in the long-term.
Strong growth supports improving profitability estimates
We expect FY ’21 orders to top the record seen in ’18. Raute’s advanced markets (Europe, North America & Russia) now drive activity, and there are two big potential Russian projects to further secure outlook for the coming years. Pandemic restrictions still limit potential within maintenance services, and the pandemic has postponed emerging markets prospects, but we view Raute’s long-term position favorable and there’s reason to conclude competitiveness has improved due to the acquisition of Hiottu (a small vendor of e.g. machine vision solutions). We don’t expect Q4 EBIT to be yet that great, but we see Raute is set to achieve EBIT margins clearly above 5% in the coming years.
We make only marginal adjustments to our estimates
Raute has plenty of workload and outlook for further orders remains strong. Project execution and margins are hence major short-term focus areas. Raute had certain project execution issues in ’18, but this time the challenges will be different and not Raute-specific. We expect Raute to reach EUR 10m in FY ’22 EBIT. There’s still uncertainty regarding how much Raute’s EBIT will improve in the short-term (cost inflation is a risk), but we believe the company to be able to achieve more than EUR 12m in FY ’23 (for now we estimate the figure at EUR 11.8m). Raute is valued 6.2-7.5x EV/EBITDA and 8.4-10.1x EV/EBIT on our FY ’22-23 estimates. We retain our EUR 26.5 TP and BUY rating.
Raute reached an already reasonable EUR 1.9m EBIT in Q3. Both revenue and profitability beat our estimates. Q3 order intake did not quite reach our estimate, but Raute’s order book touched an all-time high of EUR 150m.
Raute reports Q3 results on Oct 22. We make only minor revisions to our estimates to reflect recent new orders and continue to expect strong earnings growth from here on.
We estimate Q3 order intake at EUR 63m
Raute’s environment showed considerable signs of improvement already in Q2. The company booked one large EUR 30m Lithuanian order back then and the flow continued in Q3 with two meaningful Russian orders worth a total of EUR 34m. It will be of interest to hear Raute’s comments on current Russian and Eastern European activity levels, not to mention the pace of potential recovery in other geographies, but the fact is Raute now has enough workload for the foreseeable future. The three mentioned orders will all be delivered next year and thus it’s very clear both top line and profitability will continue to improve.
We make only minor order intake updates to our estimates
Raute began Q3 with an already very high EUR 129m order book and we estimate the figure to have increased further to EUR 156m by the end of the quarter. We understand this would be a new record high (Raute had a EUR 142m order book at the end of Q1’18) and thus the company is in an excellent position to achieve steep earnings growth during the next few years. We expect Raute to post EUR 1.4m in Q3 EBIT; this level is still far below potential since in our view Raute should be able to reach at least EUR 2-3m EBIT per good quarter. The company was able to post some EUR 3-4m quarterly levels during its previous boom cycle (Q3’18 was a record with EUR 5.6m in EBIT). We expect profitability will continue to improve from here on and estimate FY ’22 EBIT at EUR 10.5m.
Valuation is modest at a point where figures are improving
In our view Raute is now valued at undemanding multiples after a period of few years during which both new orders and profitability came under pressure. There are still uncertainties e.g. to what extent the pandemic might bother business, but we reckon our steep earnings estimates for the coming years are reasonable considering Raute was able to achieve EUR 11-15m EBIT in FY ’17-18. On this basis next year’s multiples can be described on the low side, at around 7x EV/EBITDA and 9x EV/EBIT, and even more attractive beyond that point. We retain our EUR 26.5 TP and BUY rating.
Raute’s Q2 profitability was still weak, but in our opinion the mix of stabilizing costs and very high order book are bound to drive steep earnings growth going forward.
Demand is improving somewhat faster than we expected
The EUR 35.5m in Q2 revenue was close to our EUR 36.0m estimate and had a favorable tilt towards services (EUR 16.3m vs our EUR 12.0m estimate), but EBIT nonetheless remained EUR -1.0m (vs our EUR 1.6m estimate). Employee costs grew by EUR 2.8m y/y and EUR 1.0m q/q, while other operating expenses grew by EUR 1.8m y/y and EUR 0.9m q/q (due to e.g. a proprietary marketing event). The EUR 65m order intake surpassed our estimate by EUR 10m. The higher-than-expected order intake stemmed, in geographic terms, across the board and so there were no major individual surprises. Both project deliveries and technology services orders topped our estimates. Modernizations drove services orders again to a high EUR 18m figure. Demand is overall improving a bit faster than we expected, order book is already a lofty EUR 129m and we expect it to swell further during the remainder of this year. The book is also now less dependent on large projects than it used to be just a while ago.
Traditional important markets now drive results
Raute’s guidance remains unchanged. Employee costs should stabilize going forward and we also believe other expenses have now peaked. The big order book will thus begin to drive higher profitability. Raute sees potential supply chain challenges in H2, but in our view components and logistics issues are not a major long-term topic in the context of Raute considering the company’s strong value chain position. We make only small estimate revisions. We see Raute reaching EUR 163m in FY ‘22 revenue with a 6.5% EBIT margin, whereas we previously estimated a 7% margin, and further potential from there on.
Valuation is not stretched given the long-term potential
We continue to expect steep earnings climb for FY ’22. We make a small moderation in our profitability estimates, on which Raute now trades some 8x EV/EBITDA and 10x EV/EBIT; we see the FY ‘23 multiples contracting to about 7x and 9x. In our view these are attractive levels considering Raute’s leading position in advanced markets as well as long-term emerging markets opportunities. We retain our EUR 26.5 TP and BUY rating.
Raute’s Q2 order intake grew even more than we expected, while profitability remained weak.
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).
Raute’s environment is improving a bit faster than we expected, but FY ’21 profitability will still not be great. Valuation reflects earnings gains for many years to come. In our view further upside appears elusive for now.
New capacity projects are yet to materialize
Raute’s Q1 order intake was EUR 30m, a 20% y/y increase and way above our EUR 22m estimate. There were no big orders. Project deliveries’ EUR 11m figure was close to what we expected while the EUR 19m in services orders beat our EUR 12m estimate due to high North American modernization orders. Pent-up US demand drove the figure and thus we see cautious extrapolation is in order, but mills’ utilization rates are improving worldwide. Raute sees European demand to be at a normal level. Russian order intake was muted in Q1 while demand potential remains in place. Q1 revenue amounted to EUR 25m vs our EUR 34m estimate. Raute foresaw Q1’s relative slowness. Pandemic restrictions also remain a nuisance. The low top line also meant EBIT was EUR -2.5m, compared to our EUR 1.6m estimate.
Orders are picking up, albeit from low levels
Raute also highlighted potential component shortages, however the company is addressing the challenge and in our view the issue is not that meaningful given Raute’s long-term story and overall competitive positioning. We make some revisions to our estimates, however the overall valuation picture remains unaltered. It’s clear Raute’s business is now picking up from the recent lows and the favorable order intake development also begins to support FY ’22, for which we now expect ca. 5% growth. It nevertheless seems the approximately EUR 160m revenue figure (of which some EUR 100m projects and EUR 60m services) that helped Raute to achieve above EUR 10m EBIT in the past remains many years in the future.
In our view valuation still doesn’t leave meaningful upside
The pick-up in orders turns us more confident towards next year. We expect Raute to reach only some EUR 2m in EBIT this year, compared to the potential that is many times the number. We estimate the figure to rise close to EUR 8m next year, however Raute is already trading about 9x EV/EBITDA and 13x EV/EBIT on those estimates. Full long-term earnings potential in our view remains too many years away. Our TP is EUR 21, retain HOLD.
Raute’s Q1 remained low in terms of revenue and profitability but order intake grew by some 20% y/y due to mid-size production line and modernization orders.
Raute reports Q1 results on Thu, Apr 29. We haven’t made changes to our estimates. We continue to expect gradual improvement in Raute’s operating environment. We retain our EUR 21 TP. Our rating is now HOLD (SELL).
The improvement gradient remains unclear
Recent news flow has been very encouraging across many sectors, and we believe the improving conditions also apply to Raute at least to some extent. This assumption is by no means a stretch given how meagre levels project deliveries’ small order intake reached in H2’20. Raute’s business environment is bound to improve this year. There is even a relevant chance for an order boom in the coming years, given the fact that Raute’s customers’ (plywood and LVL mills) demand is mostly driven by the construction industry. We however continue to estimate Q1’21 to have been relatively muted, albeit with some definite improvement in small project orders relative to the few previous quiet quarters.
Pickup may prove fast, but we see this year as another gap
We leave our previous estimates unchanged. We estimate smaller equipment orders to have been EUR 10m in Q1’21. The figure implies improvement on the EUR 3m Q4’20 number that excludes the EUR 55m Russian mill order but remains below the EUR 14m seen in Q1’20. We expect order book to have remained at a decent EUR 82m level and revenue to have amounted to a likewise good EUR 34m. These relatively strong figures reflect reliance on big Russian projects in an otherwise still weak demand environment. We also expect Raute to climb back to black this year in terms of EBIT and see the Q1 figure at EUR 1.6m. Raute’s global competitive position means plenty more potential in the long-term perspective, but we believe FY ’21 results will still be somewhat modest in the historical context.
In our view valuation now lands within a neutral range
The current context might warrant some stretch in valuation multiples considering the potential for a rapid improvement in orders, not to mention Raute’s strong competitive positioning. We nevertheless do not see upside on the current ca. 8-10x EV/EBITDA and 12-16x EV/EBIT multiples on our estimates for FY ’21-22. We retain our EUR 21 TP. Our rating is now HOLD (SELL).
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.
Raute’s Q4 EBIT didn’t meet our estimate and order intake was also a bit soft, excluding the big new Russian project. In our view significant improvement in business conditions still waits.
Raute has good potential to perform strong in the coming years, however in our opinion valuation is now stretched too high. Our TP is now EUR 20 (18), rating SELL (HOLD).
We make some upward revisions to our estimates
Raute said it expects FY ’20 revenue to amount to some EUR 115m. This implies Q4’20 top line at approximately EUR 39m. Raute previously expected the FY ’20 figure to decrease y/y, and now the update guides a clear decrease. We don’t view the update as substantial negative news and the preliminary ca. EUR 39m Q4’20 revenue figure is in fact somewhat above our previous EUR 33m estimate. We now estimate Q4 project deliveries revenue at EUR 26m (up 8% y/y) and that for technology services at EUR 13m (down 14% y/y). Raute didn’t update profitability guidance. We previously estimated EUR 1.7m in Q4 EBIT and we revise the estimate up a bit to EUR 2.0m.
FY ’21 EBIT yet unlikely to reach the highs seen in the past
We now expect Q4 order intake at EUR 19m when excluding the large EUR 55m Russian project. We estimate the smaller project deliveries orders at EUR 7m, a figure which is clearly above the very low benchmark figures. We expect technology services order intake at EUR 12m, in other words slightly down y/y but meaningful improvement q/q. The past few reports have painted an overall muted business picture, however there is a decent chance the outlook is already improving. We nevertheless think the recent share price gains have made near-term multiples too dear as the overall uncertainty level remains very much elevated.
In our view recent gains make downside relatively likely
We expect Raute’s top line to grow meaningfully, by ca. 15% y/y, in FY ’21. We make small revisions to our FY ’21 EBIT estimate, and now see the figure at EUR 6.4m (previously EUR 6.0m). This would still be far from the ca. EUR 11m EBIT that Raute averaged annually in 2016-19. Significant earnings potential remains for the coming years, but in our opinion the share has appreciated too steep considering all the uncertainty. We don’t see upside on the current 8x EV/EBITDA and 13x EV/EBIT multiples on our FY ’21 estimates. The valuation doesn’t look that expensive relative to long-term potential and in terms of the respective FY ’22 7.5x and 10x multiples, but we think this potential remains too far in the future. Our new TP is EUR 20 (18), rating SELL (HOLD).
Raute’s Q3 results didn’t meet our estimates as the pandemic continued to interfere with business more than we expected. Our new TP is EUR 18 (20), rating still HOLD.
The pandemic continued to hurt top line and order intake
Raute reported EUR 27.9m in Q3 revenue, down by 17% y/y and up 14% q/q, missing our EUR 34.0m estimate. The 4.8% operating margin also fell short of our 6.2% estimate. Although revenue grew q/q order intake nevertheless continued to slide, and the EUR 11m Q3 figure missed our EUR 21m estimate largely because project orders touched a low of EUR 2m, whereas we expected some recovery to EUR 10m. Services orders, at EUR 9m, were also lower than our EUR 11m estimate.
We revise our estimates slightly down
We still wait for signs of acceleration in smaller equipment as well as relatively large-sized modernization orders (the latter are recognized under services). Europe was digesting investments in new production capacity already before the pandemic, and right now it’s quite unclear when actual orders might begin to pick up again. Russia remains an important market and Raute describes local demand still active, however uncertainty continues to plague decision making there as well. It’s still early to talk much about China, although the market seems to be maturing and thus developing favorably from Raute’s point of view. The market is a big opportunity for Raute, however in our opinion the prospect should be valued cautiously. We revise our top line estimate for FY ’21 down to EUR 132m from EUR 139m and EBIT estimate down to EUR 6.0m from EUR 6.6m.
It seems profitability is unlikely to be high next year either
Raute’s competitive positioning remains intact and earnings are bound to gain significantly in the coming years from this year’s low point. However, next year’s profitability outlook still appears quite modest and hence earnings multiples seem to be on the high side of the acceptable range. In our view Raute’s valuation is now full unless there’s imminent recovery in smaller equipment orders and services. Such a pick-up in orders could happen quickly but we are cautious towards this prospect as uncertainty currently shows no signs of fading. Raute is trading at 6.8x EV/EBITDA and 11.4x EV/EBIT on our updated estimates for next year. Our TP is now EUR 18 (20), rating still HOLD.
Raute’s Q3 proved slower than we estimated as both recognized revenue and order intake fell short of our expectations.
Raute reports Q3 results on Thu, Oct 29. Many issues point how order levels and profitability might have bottomed out, yet we continue to view valuation neutral. We retain our EUR 20 per share target price and HOLD rating.
A very large Russian order raises confidence on next year
While Q3 order intake likely remained at a subdued level Raute disclosed on Oct 16 the signing of a complete plywood mill project delivery. The EUR 55m Russian greenfield is worth close to the record EUR 58m Segezha order now on delivery. Raute begins delivering the new order next year and the mill is set to start production in ‘22. Even though the order is very large such a project delivery announcement is not that surprising given Raute’s Russian plywood mill track record. As usual with such big projects, Raute’s margin potential is likely quite limited. The order raises our confidence on next year’s workload. We now expect FY ’21 revenue at EUR 139m (prev. EUR 127m). With regards to FY ’21 EBIT we now estimate EUR 6.6m (prev. EUR 7.4m).
Long-term potential remains strong, short-term still hazy
While the pandemic has negatively affected Raute’s business it’s worth bearing in mind the investment cycle was cooling already well before this year. Although the pandemic and related uncertainty now only seem to prolong themselves by the day, we nevertheless view the prospect of wider plywood and LVL sector investment upturn entirely plausible. We see a reasonable chance Raute’s order intake will bottom out during H2’20. Another positive is the high likelihood of Raute emerging from the pandemic even stronger relative to competition. On the negative side is the extended short-term pressure on profitability. While it is clear this year’s valuation multiples should be overlooked, next year could still fall meaningfully short of long-term potential. In our opinion Raute does not face long-term profitability challenges, but on the other hand the sector’s cyclical nature means long-term outlook should be valued cautiously.
We expect improvement, but multiples aren’t yet attractive
Now that a big project has been secured, we focus on smaller scale equipment orders and services in the Q3 report. Raute is currently trading some 7x EV/EBITDA and 11x EV/EBIT on our estimates for next year. We view these multiples quite neutral in the current context. We retain our EUR 20 TP and HOLD rating.
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’s Q2 results were clearly below our expectations with respect to revenue and profitability as well as order intake.
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’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’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 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’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’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 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 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’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’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 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’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’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.
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 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 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 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).
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.
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.
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.
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