Raute - Building on top of strengths

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.

Open Report