Raute - Positioned for earnings recovery

Raute’s profitability already improved. There’s uncertainty as to how much more margins will improve in the short-term, but we remain confident Raute’s positioning is favorable while the next expansion cycle has now begun.

Still shy of long-term profitability potential

Q3 top line was EUR 38m vs our EUR 36m estimate. Russia drove projects’ 28% y/y growth, while services grew 50% y/y from a low comparison base. Raute has booked many modernization orders in recent quarters and the pace didn’t falter, in fact Q3 modernization orders helped services’ intake to a record high of EUR 21m. EBIT improved to EUR 1.9m, vs our EUR 1.4m estimate, a reasonable level but still short of long-term potential. Other operating costs remained high, at EUR 4.6m, as Raute continued to invest in R&D, digitalization, and marketing. These efforts should help Raute’s emerging markets presence in the long-term.

Strong growth supports improving profitability estimates

We expect FY ’21 orders to top the record seen in ’18. Raute’s advanced markets (Europe, North America & Russia) now drive activity, and there are two big potential Russian projects to further secure outlook for the coming years. Pandemic restrictions still limit potential within maintenance services, and the pandemic has postponed emerging markets prospects, but we view Raute’s long-term position favorable and there’s reason to conclude competitiveness has improved due to the acquisition of Hiottu (a small vendor of e.g. machine vision solutions). We don’t expect Q4 EBIT to be yet that great, but we see Raute is set to achieve EBIT margins clearly above 5% in the coming years.

We make only marginal adjustments to our estimates

Raute has plenty of workload and outlook for further orders remains strong. Project execution and margins are hence major short-term focus areas. Raute had certain project execution issues in ’18, but this time the challenges will be different and not Raute-specific. We expect Raute to reach EUR 10m in FY ’22 EBIT. There’s still uncertainty regarding how much Raute’s EBIT will improve in the short-term (cost inflation is a risk), but we believe the company to be able to achieve more than EUR 12m in FY ’23 (for now we estimate the figure at EUR 11.8m). Raute is valued 6.2-7.5x EV/EBITDA and 8.4-10.1x EV/EBIT on our FY ’22-23 estimates. We retain our EUR 26.5 TP and BUY rating.

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