Rational Earnings: Backlog Execution and Pricing Supports Record-High Revenue

Narrow-moat Rational RAA delivered impressive 25% revenue growth to EUR 282 million, a record high for the group during the first quarter and slightly below its all-time highest quarterly revenue (achieved in the previous quarter). Growth was supported by an acceleration of deliveries from its above-average order backlog as supply chain constraints ease, while also benefitting from the spillover effect of price increases implemented last year. Management correctly, do not appear to be getting carried away by the record first-quarter performance, which benefited from factors that are unlikely to persist throughout the year. Full-year guidance was kept unchanged for high-single-digit organic revenue growth and a slight EBIT margin contraction. Shares are trading at a premium to our EUR 570 fair value estimate, which we maintain.

The easing of supply chain constraints for electronic components has allowed the group to reduce its order book to EUR 200 million from EUR 245 million at year-end and will continue to contribute to revenue growth during the year, even as demand begins to normalize. The spillover effect of price increases also supported 230 basis points of EBIT margin expansion to 23.5%. Management’s guidance implies a deterioration in EBIT margins from current levels as further price increases are unlikely and costs increase due to capacity expansion as the group invests in its lengthy runway opportunity.

North America continues to be the most important growth region for the group, reporting 41% sales growth, benefitting from the expansion of its sales and service network in the region. The longer-term growth outlook in other regions also remains promising as Rational plans to develop a local combi-steamer for the Chinese market to support its competitive position in the region.