Suominen - Improvement potential beyond H2’21

We leave our estimates unchanged for now

Suominen’s Q2 was still good in terms of revenue and profitability, although the US inventory pile-up already began to have an effect and led to some top line softness. Americas’ Q2 revenue declined by 13% y/y and thus Suominen’s EUR 114m top line fell short of the EUR 120m estimates (Europe still grew by 3% y/y). Suominen’s gross margin however remained a strong 14.7%, which helped the company to reach EUR 15.3m in EBITDA, in other words somewhat above estimates. We revised our H2’21 as well as FY ’22 estimates down, and we leave our estimates unchanged ahead of the report. We still expect Americas’ Q3 revenue to have dipped by 24% y/y; we estimate 6% y/y drop for Europe. We estimate Q3 EBITDA at EUR 9.5m.

Focus will be on the US volume recovery from Q4 onwards

We see Suominen H2’21 revenue down by 16% y/y. The effect, when combined with our estimated ca. 400bps y/y softening in gross margin, is a EUR 12m y/y decrease in H2’21 EBITDA to EUR 19.6m. We find raw materials prices relevant for Suominen did not gain that much during Q3, at least compared to the surge seen in Q2. The Q3 report’s focus will be on how the US inventory situation looks now and to what extent the supply jam can be expected to dissolve by the end of Q4. We also expect Suominen to have either completed or to be near completing the announced investments in Italy and the US.

Some y/y softness in FY ’22 EBITDA due to strong H1’21

We estimate FY ’22 revenue at EUR 431m, which implies on average 13% higher quarterly revenue going forward from H2’21. We expect this growth to help operating margins up by ca. 100bps from our estimated Q4’21 levels, and we therefore estimate FY ’22 EBITDA at EUR 48.5m, down by some EUR 5m y/y. Suominen is now valued around 5.5x EV/EBITDA and 9x EV/EBIT on our FY ’21-22 estimates. We consider these levels very modest despite the uncertainties related to volumes and gross margins. We retain our EUR 6 TP and BUY rating.