Rational Earnings: Guidance Appears Conservative Relative to Strong First-Half Results

Narrow-moat Rational’s first-half results were above our expectations and indicate the group’s strong brand reputation, as price increases implemented in the previous year have stuck, supporting impressive revenue and EBIT growth of 23% and 46%, respectively. Revenue was boosted by the unwinding group’s elevated order book at the start of the year, caused by supply chain constraints and customers prebuying equipment prior to price increases. Rational’s order book has declined by EUR 85 million-EUR 160 million and currently reflects more typical levels, as delivery times are back to normal. Full-year guidance for high-single-digit revenue growth and a slight contraction in its EBIT margin was confirmed, implying a notable deterioration in profitability, both sequentially and against the prior year. We view Rational's reiterated guidance as conservative and slightly raise our full-year estimates to 9% revenue growth (from 7%) and our EBIT margin to 23.2% (from 23.1%), which incorporates the strong first-half results; a less meaningful decline during the second half than management expected. Nevertheless, our fair value estimate is unchanged at EUR 570 with shares trading at a premium.