Raute - Order book will drive results

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.

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