Raute - More orders needed
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).