Raute - High earnings valued low
Raute’s Q3 earnings were already very strong, and although new order softness persists valuation also remains very low.
Q3 earnings very high, Q4 unlikely to repeat despite growth
Raute produced very strong Q3 margins even when Wood Processing revenue was more than EUR 5m below our estimate. Wood Processing EBITDA margin gained 400bps q/q, while its revenue was down EUR 10m, due to seasonality issues and high share of modernization deliveries as well as lower fixed costs. Raute has also improved its project pricing practices, so even if it may not be able to repeat similar margins very soon there’s still an upward margin trend. Wood Processing led Raute’s EUR 6.3m comparable EBITDA clearly above our EUR 5.0m estimate, while Services and Analyzers performed largely as we expected.
Growth may not continue in FY’25, but sales mix could improve
We expect Wood Processing Q4 earnings to decline a bit q/q, to around Q2 levels, although its revenue is likely to grow. Services performance should continue to hold, while we believe Analyzers’ Q4 figures will decline due to the high comparison period and continued order softness. Construction market softness still limits new orders, which is at least to some extent related to the political uncertainty around the POTUS election; North America still has better demand outlook than Europe despite the extended period of low orders. We believe Q4 orders could already show modest q/q gains, but they are likely to remain rather low. It looks like Wood Processing may find growth hard next year, however Services and Analyzers have potential for stable or even improving volumes. This would lead to a favorable change in sales mix even though Wood Processing could already achieve a rather impressive 8% EBITDA margin this year.
FY’25 earnings could decline, but multiples are also very low
Raute is valued slightly above 4x EV/EBIT on our FY’24 estimates, and the picture isn’t much different next year as we estimate the high backlog and gradually improving demand help keep revenue and earnings rather stable then. We estimate FY’25 revenue to decline 3% and earnings down by some EUR 1m. Our new TP is EUR 15.0 (16.0) as there are still risks related to next year’s volumes since small equipment orders remain low, but the very moderate earnings multiples mitigate these risks.