Company Reports

Narrow-moat Rational managed to grow organic revenue impressively by 2% year over year during the first quarter, which faced a comparison of 25% growth against the previous year. Asia and North America continue to offer the group a significant runway, growing 28% and 13%, respectively. We expect the introduction of new product innovations during the quarter to support growth and help expand its addressable market due to the added benefits its cooking appliances provide to professional kitchens versus traditional cooking appliances. Management kept its full-year revenue guidance in the mid- to high-single-digit percentage range as demand remains robust and comparables against the prior year become easier as the year progresses. Shares are trading at a 30% premium to our EUR 600 fair value estimate, which we maintain.

Narrow-moat Rational delivered a 17% increase in operating profits during fiscal 2023, which was driven by the brand’s strong pricing power, more than compensating for an increase in investments into research and development and marketing to fuel future growth. Its EBIT margin expanded 140 basis points to an impressive 24.6%, which management expects to be at similar levels in fiscal 2024. Rational’s reinvestment into product development and expanding its geographic footprint will help maintain its leading market share and increase adoption of its large addressable market for multifunctional cooking appliances. Shares are trading at a 30% premium to our unchanged EUR 600 fair value estimate.

Rational’s multifunctional cooking appliances have a significant presence in restaurants and community catering. Its granular strategy is focused on two cooking appliances used by professional kitchens combined with significant reinvestment into product development, which should allow the group to maintain its dominant market share of 50% and earn high returns on invested capital through superior product differentiation. Having pioneered the technology that combined hot air and steam for mass catering purposes, Rational has constantly been working on product upgrades to improve cost-savings versus traditional cooking appliances and existing models.

Narrow-moat Rational delivered stronger-than-expected full-year results. Revenue growth of 10% beat management’s full-year guidance of high-single-digit growth. Price increases combined with lower operating costs underpinned 17% operating growth, translating into a 24.5% EBIT margin, significantly above management's initial margin guidance of around 23%. We believe margin levels achieved in fiscal 2023 are sustainable given Rational’s strong pricing power, which is due to its brand reputation and the cost-savings of its products for professional kitchens. Shares appear richly valued relative to our unchanged EUR 570 fair value estimate.

Narrow-moat Rational 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.

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.

Rational’s granular strategy on where to compete combined with significant reinvestment into product development should allow the group to maintain its dominant market share of 50% and earn high returns on invested capital through superior product differentiation. Since incorporation in 1974, Rational has been entirely focused on professional kitchens and their core activity of cooking. Having pioneered the technology which combined hot air and steam for mass catering purposes, Rational has constantly been working on product upgrades to improve the cost savings versus traditional cooking appliances and existing models.

Narrow-moat Rational 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.

Narrow-moat Rational reported 31% revenue growth, exceeding our estimates and management’s revised guidance provided at the end of September 2022. Price increases of 10% and the easing of supply chain constraints for electronic components, thereby accelerating deliveries on the group’s order book, supported its outperformance. We see plenty of runway ahead, which is consistent with management’s high-single-digit revenue growth guidance for 2023. We raise our fair value estimate to EUR 570 from EUR 540, which incorporates the group’s better-than-expected top-line performance as well as the spillover effect of already announced price increases. Shares remain fairly valued.

Rational’s granular strategy on where to compete combined with significant reinvestment into product development should allow the group to maintain its dominant market share of 50% and earn high returns on invested capital through superior product differentiation. Since incorporation in 1974, Rational has been entirely focused on professional kitchens and their core activity of cooking. Having pioneered the technology which combined hot air and steam for mass catering purposes, Rational has constantly been working on product upgrades to improve the cost savings versus traditional cooking appliances and existing models.

Having released an ad-hoc trading update five weeks prior, which saw management more than double its full year revenue growth outlook, narrow-moat Rational's third-quarter results had no further surprises. We maintain our EUR 540 fair value estimate, despite adjusting our estimates to reflect an acceleration in deliveries in 2022. Ultimately, the easing of supply chain constraints will result in revenue expected in later years being brought forward, and the group's unusually large order book starts to return to more normalized level. Shares are fairly valued.

Rational’s granular strategy on where to compete combined with significant reinvestment into product development should allow the group to maintain its dominant market share of 50% and earn high returns on invested capital through superior product differentiation. Since incorporation in 1974, Rational has been entirely focused on professional kitchens and their core activity of cooking. Having pioneered the technology which combined hot air and steam for mass catering purposes, Rational has constantly been working on product upgrades to improve the cost savings versus traditional cooking appliances and existing models.

Narrow-moat Rational raised its full-year guidance considerably in an ad hoc trading update, anticipating growth in full-year revenue of 20%-25%, up from 10%-15%. The increase is attributable to the easing of supply chain shortages for electronic components, which have accelerated the delivery of the group’s lengthy order book into revenue. While we anticipate tweaking our short-term estimates, we don’t expect a material change to our EUR 540 fair value estimate, as revenue projected for 2023 will instead be achieved in the current year, thanks to the easing of supply chain constraints. The shares currently appear fairly valued.

Narrow-moat Rational increased second-quarter revenue by 10% to EUR 232 million, a record for the group, despite deliveries continuing to be affected by a shortage of key components, which has led to orders growing at a faster pace than revenue. Price increases implemented in April will only have an impact on subsequent orders; thus the company has been unable to offset raw material inflation, resulting in a 6.8% decline in EBIT during the second quarter. We anticipate a slight improvement from the 20.3% EBIT margin achieved during the first half for the remainder of the year as price increases on new orders are realized. Management kept guidance for the full year unchanged. We reiterate our EUR 540 fair value estimate and view the shares as slightly overvalued at current levels.

Rational’s granular strategy on where to compete combined with significant reinvestment into product development should allow the group to maintain its dominant market share of 50% and earn high returns on invested capital through superior product differentiation. Since incorporation in 1974, Rational has been entirely focused on professional kitchens and their core activity of cooking. Having pioneered the technology which combined hot air and steam for mass catering purposes, Rational has constantly been working on product upgrades to improve the cost savings versus traditional cooking appliances and existing models.

Narrow-moat Rational reported exceptional revenue growth of 34% in first-quarter 2022, the second-highest quarterly revenue in the company’s history. The ability to source electronic components, which have been in short supply, from both its primary and new secondary supplier facilitated the firm's ability to execute on its existing backlog. New order intake of EUR 300 million was strong, representing year-on-year growth of 70%. Order growth has been supported by prebuying in anticipation of Rational’s April price increases, as well as extraordinary high delivery times due to strained supply chains and the group’s large backlog. The order backlog is at a record EUR 380 million, which will support strong revenue growth and visibility for 2022. Management maintained full-year revenue guidance at between 10% and 15%, and slight EBIT margin expansion above 2021, which is consistent with our forecasts. We reiterate our EUR 540 fair value estimate and view shares as fairly valued.

Shortages of electronic components are extending lead times for narrow-moat Rational’s multifunctional cooking appliances, delaying its recovery despite a record number of new orders. Full-year revenue growth of 20% remains 7.5% below 2019 levels. Having managed to largely meet precoronavirus revenue in the second and third quarter, sales fell sequentially in the final quarter due to component shortages, which have persisted in the first couple of months in 2022. As such, Rational’s order backlog at year-end stands at EUR 300 million and has grown in 2022 as shortages persisted. Rational’s order backlog represents roughly four to five months of revenue compared with more typical levels of one month, which will prolong the duration of its recovery. Full-year revenue guidance is between 10% and 15%, which is directly in line with our forecasts of 12.5% growth. We reiterate our EUR 540 fair value estimate and view shares as slightly rich.

Shortages for electrical components used in narrow-moat Rational’s multi-functional cooking appliances restricted its recovery in the fourth quarter of 2021. Full-year revenue grew 20% based on preliminary results, directly in line with expectations. We reiterate our EUR 540 fair value estimate. Shares are richly valued and currently incorporate our bull-case scenario.

We initiate coverage on Rational AG with a EUR 540 fair value estimate, narrow moat, and exemplary capital allocation rating. Rational’s focused strategy on innovating and manufacturing combi-steamers for professional kitchens has led to a dominant market share and high returns on invested capital due to superior product differentiation. A largely untapped addressable market offers a lengthy runway to convert users of traditional kitchen appliances to multi-functional combi-steamers that offer customers a lower cost of total ownership by reducing labor, energy, and raw material costs. The group’s quality and outlook are fully reflected in the current share price, which we view as overvalued. We believe investors are also attracted to Rational’s 70% dividend payout ratio.

Rational’s granular strategy on where to compete combined with significant reinvestment into product development should allow the group to maintain its dominant market share of 50% and earn high returns on invested capital through superior product differentiation. Since incorporation in 1974, Rational has been entirely focused on professional kitchens and their core activity of cooking. Having pioneered the technology which combined hot air and steam for mass catering purposes, Rational has constantly been working on product upgrades to improve the cost savings versus traditional cooking appliances and existing models.