Rational Earnings: High-Single-Digit Growth Guidance Confirmed Despite Slowdown in Sales

Narrow-moat Rational RAA reported a 1% decline in sales during the third quarter as the benefits of its unusually high order backlog, which had underpinned revenue growth during the first half of 2023, subsided. Results are tracking in line with our expectations. The group remains firmly on track to deliver its full-year guidance of high-single-digit revenue growth. Gross margin expansion of 270 basis points during the third quarter to 57.4%, highlights our intangible asset moat source underpinned by its brand reputation and the cost-savings its products provide to professional kitchens. We maintain our EUR 570 fair value estimate and view shares as fairly valued.

North America and Asia continue to be the group’s biggest growth markets, with sales growing by 5% and 13%, respectively. We believe the group will continue to enjoy a lengthy runway opportunity, driven by low penetration rates in both regions for its cooking appliances. The buildout of a new production facility in China to cater to the local market will likely help improve adoption rates of its cooking appliances versus traditional catering equipment. The expansion in gross margins was fully offset by reinvestment into sales and marketing, which led to a 6% decline in operating profits. Management confirmed its expectation of the full-year operating margin to be broadly in line with the 24% achieved during 2022.