Raute Extensive Report: We still see a pricing error in the stock

Translation: Original published in Finnish on 4/21/2025 at 10:15 pm EEST.

We reiterate our Buy recommendation and EUR 18.00 target price for Raute. In 2024, Raute achieved a sharp turnaround in earnings after several difficult years thanks to growth and efficiency measures. We believe that the turnaround is on a solid footing, even though the support for the result from growth may fade this year and uncertainties related to the global economy and trade policy will dampen the company's partly investment-driven demand. Based on the low valuation, investors are quite skeptical about the company's ability to even roughly maintain the earnings level achieved as the implementation of the strategy progresses. Thus, we still see a clear pricing error in the stock. 

Raute has sustainable competitive advantages and a growth-oriented strategy

Raute is an engineering company serving especially the plywood and LVL industries. Drivers such as rising living standards and environmental concerns support wood construction, which in turn increases demand for Raute. We believe that Raute has a sustainable competitive advantage based on technology and a global sales and service network, as well as a solid market position, especially in the demanding high-end segment and in Europe. Around 70% of the company's revenue has been generated from cyclical equipment project deliveries, just over 20% from more stable services and the remaining 10% from analyzers.

Raute has implemented a growth-oriented strategy since 2023, and in 2024 the company achieved the highest revenue in its history, mainly driven by several large projects. Raute aims to grow notably in Western countries (incl. North America) and in the high-margin Services and Analyzers businesses, and partly also by expanding into wood product segments outside plywood and LVL (e.g. solid wood). Taking into account Raute's strengths and the already high market shares of its European businesses, the trategy's success is uncertain, especially in terms of sustainable growth, as the revenue support from several major projects like those in 2024 is not expected to continue. The roadmap to reach the 250 MEUR revenue target of 2028 is also not yet clear. That said, we like the level of ambition of the strategy, and the strong earnings improvement in 2024 was an encouraging signal that the company's competitive advantages have been preserved and that the changes made by the current management are working.

We expect Raute to be able to maintain its performance

Raute's order book remains high, providing the company exceptionally good visibility for the year, despite the uncertainties and weaknesses related to the global economy as well as trade and geopolitics. The current order book does not provide further support for 2026, but in the baseline scenario, a recovery in construction due to lower interest rates will gradually stimulate demand for Raute's products and services. We expect the company to maintain its adjusted EBITDA margin almost flat at relatively high levels, as growth in Services and Analyzers, efficiency measures and progress in strategy execution offset the pressure on the result via revenue due to the end of major projects in Wood Processing. We have lowered our 2026 estimates in this update for macro reasons, but otherwise the changes are small. Our forecasts are well below Raute's aggressive target levels (revenue of 250 MEUR and adj. EBITDA-% of more than 12% over the cycle in 2028), especially on growth. The main risks to our forecasts are demand volatility, project risks and the success of growth investments. 

Valuation is still very attractive

Based on our estimates for this year and next, Raute’s adjusted P/E ratios are 8x and 9x, while the corresponding EV/EBIT ratios are around 5x. We find the EV valuation in particular very moderate for Raute, and the multiples are well below the ranges we have approved for the company. Our view that the stock is cheap is supported by a deep relative discount and a DCF at our target price level. As a result, the expected return on the valuation upside and dividend is still well above our required return, although we have also slightly increased our required return due to macro risks.