High-End Oven Maker Took a Hit in the Pandemic. The Reopening Hasn’t Been Easy, Either.
When it comes to German commercial kitchen-equipment maker Rational, analysts think the stock price is downright irrational. According to FactSet data, the average analyst price target for Landsberg, Germany–based Rational’s stock was 26% below its closing price on Wednesday, at 940.60 euros ($1,118). Of nine analysts who follow the stock, only one has a Buy rating, and six have the equivalent of a Sell.
The quality of the company’s products is hardly in dispute. Rational (ticker: RAA.Germany) is known for making an oven combining steam and convection, or dry heat—so-called combi-ovens. Rational’s customers range from the White House and Buckingham Palace to fast-food chains Kentucky Fried Chicken and Nando’s, for products costing tens of thousands of dollars each.
Scottish fund manager Baillie Gifford, a growth investor, is Rational’s leading shareholder. “Thanks to its innovative products, its capital-light business model, and, above all, its mission to maximize customer benefit, Rational is in the enviable position of being the global market leader in providing modern cooking systems for professional kitchens,” wrote Moritz Sitte, co-manager of the Baillie Gifford European fund, in an email to Barron’s.
Rational and Sitte argue that there are more than four million professional kitchens using traditional appliances that could be switched to its equipment. “Most professional kitchens around the world still operate in the traditional way, which means there remains a large opportunity for Rational to penetrate the market and convert these operators into long-term customers,” Sitte wrote.
Still, Rational is coping with the Covid-19 pandemic that shut down restaurants and catering operations around the world, and a reopening that features multiple supply-chain issues.
Rational has a market cap of €10.4 billion. Analysts estimates 2021 sales at €746 million.
Like its products, Rational’s stock price isn’t cheap. The shares trade at 82 times earnings, according to FactSet. Based on enterprise value-to-earnings before interest, taxes, depreciation, and amortization, or Ebitda, Rational comes in at a 70 multiple, among the highest of European large-cap stocks. Those metrics temper analyst enthusiasm.
The company did issue a positive update on July 22 ahead of its second-quarter earnings, pointing out that revenue during the June-ended quarter was slightly above pre-crisis levels, and 81% above the year-earlier quarter. Rational said that 2021’s sales might match 2019 levels a year earlier than its previous estimate, benefiting from the return of catering in most markets, the start of tourist season, and customers making investments with government assistance. Tight supplies led to inventory-building by both dealers and customers.
The stock rallied over 5% on that day.
“We believe the Covid-19 pandemic could lead to an acceleration of Rational’s growth,” said Sitte. “Hygiene standards are increasing, which favors more automation in kitchens, while the increasing popularity of online food-delivery services also favors restaurants that can manage high throughput without sacrificing consistency, quality, and speed.”
But Rational also faces lower-priced competition, from rivals such as Florida-based Welbilt (WBT), which is being acquired by Italy’s Ali Group.
Supply shortages are also a problem, particularly in key components such as microcontrollers. Rising steel and shipping prices also pose issues, notes Deutsche Bank analyst Lars Vom-Cleff, who has a Sell rating on Rational shares.