Raute - Backlog underpins earnings growth

Wood Processing to grow at high double-digits in FY ’24-25

Raute continued to advance according to its strategy last year while its markets showed somewhat polarized trends. Demand in North America, a market driven by smaller orders, remained strong whereas European smaller orders were missing while there were three larger orders (plus the EUR 50m order to Uruguay): the EUR 29m Latvian, EUR 45m French and EUR 93m Finnish orders will be delivered largely over the course of FY ’24-25, which should lift Wood Processing revenue close to EUR 150m in the coming years and thus Raute’s top line to around EUR 200m. Raute has also achieved EUR 4-5m in annual cost savings, but the relative lack of workload for FY ’23 has likely left Q4 EBITDA margin still at a modest level of 7%; we estimate Q4 adj. EBITDA at EUR 3.2m.

We estimate 17% group revenue CAGR for FY ’24-25

Raute’s FY ‘23 order intake reached well above EUR 300m, and we estimate small orders (besides the four larger ones totaling EUR 217m) to have made EUR 104m of that sum. The small order volume remains a source of uncertainty, but the changes to its outlook are more likely to be positive than negative from here on as the EUR 38m European small order volume we estimate for FY ’23 is unlikely to fall further. Raute’s earnings are bound to increase over the coming years as workload seems more than adequate. The backlog’s mix adds some uncertainty as larger projects may have their challenges while margins are often not as high as for small orders, yet we believe e.g. the EUR 93m Finnish LVL order should earn healthy margins. A pick-up in European small orders could accelerate the earnings curve some more; we estimate 7.5% EBITDA margin for FY ’24, from which Raute would still have a lot of room to improve towards a double-digit margin.

High single-digit EBITDA margin likely achieved rather soon

Raute is valued 6.5x EV/EBIT on our FY ’24 estimates, in our opinion an undemanding level as there’s further earnings gain potential beyond this year. The multiple is below 5x for next year when we estimate Raute to achieve an EBITDA margin of 8.5%. Our new TP is EUR 13 (12) as we retain our BUY rating.