Raute - Nearing double-digit EBITDA margins
Raute reports Q3 results on Oct 31. The company upgraded guidance as in our view especially Wood Processing margins have developed better than was previously expected.
Q2 revenue and earnings already hit all-time highs
Raute Q2 revenue hit the all-time high of EUR 57m; from here on growth continues y/y even if the high level of deliveries now means q/q growth might be negative. The high Q2 figures led Raute to upgrade guidance in June, and now in our view especially the progress of Wood Processing has continued better than previously expected so that the company posted another upgrade. We estimate Q3 comparable EBITDA at EUR 5.0m; Raute may not quite top the EUR 5.4m Q2 figure yet as Wood Processing volumes have likely been a bit lower q/q, but we believe the segment’s quarterly EBITDA will remain close to EUR 3m at least for now. The recent lack of new smaller equipment orders means top line may face headwinds next year, but change negotiations address the situation as projects’ early-stage workload diminishes.
EBITDA margin should stay around 9% for now
We make only minor revenue estimate revisions, but we upgrade our earnings estimates by around EUR 2m for this year and next. Wood Processing has enough backlog so that next year will not be too bad, although additional growth may be hard to find in the short run. Order intake has been slow this year, apart from the EUR 20m Latvian order, as low demand in e.g. the construction industry has left customers hesitant to place orders. Wood Processing may thus not contribute much more earnings gains next year, but Analyzers has room to improve especially if smaller orders begin to pick up while Services’ performance should remain quite steady.
More long-term potential to above 10% EBITDA margins
We estimate EBITDA to remain around EUR 19m also next year even if revenue may not grow then as the market for smaller equipment orders stays challenging. Raute FY’25 revenue could remain flat or decline a bit, but the relatively modest Q1’24 figures mean the comparison period should still not be too challenging for some further margin expansion. Raute could then be close to hitting 10% EBITDA margin. Raute is valued a bit above 5x EV/EBIT on our FY’24 estimates and below that on our FY’25 estimates. Our new TP is EUR 16.0 (15.0) as we retain BUY rating.