Suominen - H2 volume recovery to prove
Suominen’s Q2 revenue declined 4.5% y/y and was EUR 113m, compared to the EUR 121m/120m Evli/cons. estimates, as Europe came in as we estimated but Americas fell EUR 8m short of our estimate. There was some progress as volumes increased slightly, but not quite as much as might have been expected. The low volumes meant gross profit fell some EUR 5m short of our estimate, however sales margins are already improving due to the lag between sales prices and lower raw materials prices. Decreased SG&A costs also helped a bit, but operating profitability figures ended more than EUR 3m lower than we estimated. Cash flow was strong thanks to declining inventories.
Focus rests on both volume growth and efficiency
Suominen continues to expect comp. EBITDA to increase, even when the H1’23 figure was flat y/y, since there are still signs the US supply chain inventory situation is improving further; H2 is also usually stronger as demand for hygiene products picks up in late summer. Suominen hence focuses on volume recovery and plant-level efficiency measures; the latter has recently included the closure of the plant in Mozzate, and the issues related to European production transfers still demand some attention (in addition to which Suominen also looks for some incremental cost measures). The US market is central for a meaningful group-level volume recovery, but Suominen is also bringing the EUR 6m Nakkila sustainable products investment to completion in H2 as new products sales continues to be another key focus area.
H2 improvement still needs to justify current valuation
We revise our estimates down for both this year and next. We expect FY ‘23 top line to stay flat when volumes improve while prices decline. We revise our FY ’23 profitability estimates down by EUR 10m and those of FY ‘24 by EUR 3m. FY ’23 profitability seems to remain low, but we estimate Suominen to reach around 8% EBITDA and 5% EBIT margins by the end of the year. Further marginal improvement next year should then produce an EBITDA north of EUR 40m, which would be in line with historical averages and values Suominen about 7.5x EV/EBIT on our FY ’24 estimates. We retain our TP of EUR 2.7 and HOLD rating.