Raute - Progress despite market challenges
Q3 margins were already quite high, order intake was soft
Raute’s EUR 34.0m Q3 top line fell short of our EUR 39.2m estimate as order book mix (tilted to large projects) and the new ERP system’s adoption caused Wood Processing and Services revenue to be soft. Raute’s EUR 3.0m comp. EBITDA was nonetheless as we estimated as the improvement program has yielded results, and it should also be noted Analyzers mix wasn’t particularly favorable. The EUR 19m order intake fell clearly short of our EUR 29m estimate, which by itself isn’t a very significant issue since there’s always some quarterly variation; this time there were also postponed North American orders, but at least so far order prospects haven’t vanished. Services’ order activity isn’t too bad, but short-term market uncertainty has increased further in Europe (by contrast demand remains good in North America); the softwood plywood market has been weak for a while and the sentiment seems to have spread to birch plywood as well.
Smaller European orders may still be missed for a while
The report was twofold in the sense that relative profitability was higher than we estimated, while outlook for smaller orders has worsened in Europe as construction industry challenges continue. Raute’s improvement program will achieve EUR 4-5m in annual cost savings by the end of this year; Raute returns to growth next year and needs to hire some additional labor, but in our view this is not a major issue from the perspective of productivity and earnings. There’s likely to be at least some q/q pick up in Q4 order intake (thanks to North America), but a prolonged dearth in European production line and spare parts orders would cast some more uncertainty around the pace of next year’s earnings improvement.
Valuation implies a lot of uncertainty around FY ’24 EBIT
Raute’s strategy execution is on track and we continue to see the company headed towards EUR 10m EBIT over the next few years. European market softness remains the most significant source of short-term uncertainty, but we still see EUR 8m EBIT within reach next year. Raute is valued below 5x EV/EBIT on that basis. We retain our EUR 12.0 TP and BUY rating.