It’s rare for a CEO to be praised enough, so I must commend Mika Saariaho’s start to his CEO tenure (24.5.2022->) and especially the profile boost the entire company has achieved after disengaging from Russia and the former CEO’s politically charged statements. “Promise less and deliver more” is a natural and reliable strategy for Finns. In this case, you can’t really fail; everyone is relatively satisfied, and you get to operate in peace. Share buybacks are a brilliant big-world move for a small player like Raute, with the company’s valuation levels forgotten somewhere between a trash can and an ashtray. Qualitatively and in terms of results, however, the company is a high-quality market leader in a fragmented market, where consolidations are likely to be seen in the future.
Analysts cautiously note the undervaluation, investors do not, but the most important thing is that the company understands its value. The stock has actually risen completely unnoticed from its offering prices, when the stock was briefly available in 2022 at €7.35/share + warrants, i.e., a few tens of cents more. At the time, I followed the warrant margins, and only one investor took a significant position on Raute’s future from the same low levels. The uncertainty was, of course, of a different magnitude, and the CEO had not yet demonstrated his capabilities. The turnaround has come partly through small but important factors, such as expanding services and offerings, boosting the image, and, for example, streamlining payment terms, which in turn improves cash flow. A strong order book consisting of smaller streams provides a buffer and indicates successful sales, even if customers continue to hesitate with larger projects amidst tariffs and uncertainties.
Although the business is small and volatile compared to peers, and individual orders are crucial for success, the valuation level is low:
Evli, peers
Inderes, peers
What has attracted me to the company for a longer time, in addition to its dirt-cheap potential, is the company’s (i.e., the CEO’s) belief in that potential more than analysts and investors. A growing dividend keeps some satisfied during quiet periods, and share buybacks support the share price and return more capital to owners. Growth and market recovery remain an option, which even analysts don’t really believe in this year and are hesitant about the future. Thanks to efficiency measures and profitability improvements made during weak times, it is possible that the company will succeed in its strategy to grow steadily to 250 million in revenue by 2028, which is not currently priced in; instead, the pricing is based on a collapse.
Customers are likely waiting for tariff clarity and even a small glimmer of light regarding a turn in the construction cycle for their investments. The niche LNG sector steadily absorbs birch plywood, and there is constant demand for it, which provides security, as does the growing, more defensive Service side, which has recently been invested in. An order flow consisting of smaller projects with about a year’s buffer in the current market is a commendable achievement, and even one large project (+€20M) would provide significant support for the outlook and the share price. If this is the quiet phase for the extremely cyclical Raute, it will be interesting to see what the company is capable of in an upward construction cycle and optimal conditions under the current management.
