Suominen - Earnings to recover over the year

Low comparison figures, earnings to gain over this year

Suominen’s Q4 showed some encouraging signs as revenue in Europe declined less than estimated, while gross margin continued to improve q/q, however the EUR 5.3m EBITDA remained soft and missed estimates. Both revenue and EBITDA have room to improve this year given that the comparison figures are low due to both soft volumes as well as declining nonwovens sales prices. We believe Suominen’s volumes and prices will gain in FY ’24; the former should benefit from normalization in the US as the supply chain glut dissolves, while the latter will be driven higher by increasing raw material prices. We estimate Q1 EBITDA at EUR 6.6m, in other words an increase of EUR 4m y/y and EUR 1.3m q/q; the level is still low compared to the above EUR 10m quarterly figure we believe Suominen should eventually be able to achieve.

Towards 10% gross margin and 9% EBITDA margin

We estimate H1’24 revenue to have developed basically flat y/y, despite some further volume gains, as Suominen’s sales prices still faced some y/y headwinds even if raw materials prices have recently trended up a bit (we estimate Suominen’s raw materials prices to have gained roughly 5% q/q in Q1, slightly slower than in Q4). We estimate moderate gains in sales prices and a further recovery in volumes to result in 9% y/y higher H2 revenue, which should help Suominen to around 10% gross margins by then. This would result in some 9% EBITDA margin going towards next year. That level may still fall short of the performance which Suominen would like to achieve in the long-term, and Suominen has been focusing on commercial and operational excellence measures.

9% EBITDA margin would still be relatively low

Suominen is valued around 12x EV/EBIT on our FY ’24 estimates, which we view a bit high but justified assuming earnings improve over the course of the year. The multiple is about 7x on our FY ’25 estimates, assuming Suominen reaches 10% gross margin towards the end of this year. We don’t view current valuation too high as our FY ’25 estimates should still leave upside going forward, however full earnings recovery takes time. We view valuation neutral as we retain our EUR 2.5 TP and HOLD rating.