Suominen - Higher volumes to lift earnings
Sales margins have improved, higher volumes need to follow
Suominen’s sales margins improved in Q3, even though volumes stayed soft, as raw materials prices slid. The conditions have been favorable for sales margins as nonwovens prices don’t decline as fast as raw materials, however Suominen’s pricing cycle may have reached another inflection point as both wood and oil-based raw materials prices saw modest gains in Q4 (we estimate Suominen’s raw materials prices to have trended up less than 5% q/q in Q4). We make only small estimate revisions before the report; we estimate EUR 112m in Q4 revenue as European volumes are likely to have remained soft, whereas Americas should show somewhat more encouraging development. We estimate Q4 EBITDA at EUR 7.7m, in other words further improvement from the recent low levels but still quite modest in the long-term context.
At least some further EBITDA gains to be seen this year
Assuming stabilizing price trends going forward, Suominen’s raw materials prices should settle around the average levels seen in FY ’23. Further sales margins gains are now harder to achieve, while on the other hand the apparent bottom in raw materials prices signals improving demand. We continue to expect recovery in Suominen’s gross margin towards the 10% level, the achievement of which would require more US volumes. The demand situation in the US continues to be of vital interest; there should be at least some additional gradual improvement in demand as recent high inventories have already been declining. Suominen should guide at least some increase in FY ’24 EBITDA as Q4 figures are likely to have remained moderate enough so that further gains aren’t too challenging to achieve. FY ’23 EBITDA is likely to have remained below EUR 20m; in our view FY ’24 EBITDA is set to improve above EUR 35m, assuming the demand recovery materializes.
Valuation still looks quite neutral amid earnings recovery
Suominen is valued 9x EV/EBIT on our FY ’24 estimates, a level we view neutral as our earnings estimates are in line with historical averages. Earnings will recover from the low levels, but a lot depends on the US. We retain our EUR 2.7 TP and HOLD rating.