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Raute - Earnings gain despite uncertainties

Raute’s Q4 profitability didn’t meet our estimates as Wood Processing still lacked volume while development costs were also at an elevated level.

Wood Processing soft while Services & Analyzers performed

Raute Q4 revenue decreased 1% y/y to EUR 45.2m, vs our EUR 44.0m estimate, as Wood Processing fell 13% y/y due to the lack of Russia, which still contributed during the comparison period’s wind-down. Services and Analyzers meanwhile clearly topped our estimates (the former’s sales were driven by delayed deliveries while the latter had a favorable mix), but development projects elevated costs so that Wood Processing EBITDA declined EUR 1m y/y. The EUR 2.7m comparable EBITDA was thus soft relative to our EUR 3.2m estimate, but there were no material surprises as the trends seen in Q3 (and before that) continued in Q4. Raute’s profitability continues to improve from the EUR 9.3m comparable EBITDA seen last year, however small order demand uncertainty remains an issue while the growth strategy projects and ERP investments still burden earnings albeit not as much as last year.

Some earnings uncertainty due to Wood Processing

We estimate Wood Processing to reach 4% EBITDA margin this year, which shouldn’t be too challenging to achieve although e.g. Finnish industrial strikes may cause some complications, while Services and Analyzers are to continue at double-digit levels. We estimate Raute FY ’24 comparable EBITDA at EUR 13.2m: the 7.4% margin is still quite modest relative to potential as some development costs remain while the uncertain European small order outlook justifies caution with respect to Wood Processing performance. Yet the order backlog supports workload also beyond this year and work continues so that Raute can address e.g. the solid wood product segment (including CLT). The new offering doesn’t require much R&D; Raute mostly has the needed capabilities, although it could add certain elements through M&A.

Valuation hasn’t set the bar very high

Uncertainties limit visibility on earnings gain pace, but the bar isn’t high as Raute is valued 5.5x EV/EBIT on our FY ’24 estimates. Wood Processing has been loss-making for a while due to the lack of volume, but in our view a low-to-mid single-digit margin should be within reach. We retain our EUR 13 TP and BUY rating.

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