Suominen - Looking for more margin expansion
Earnings improved, but not as much as was expected
Suominen’s EUR 113.6m Q1 revenue was as estimated as volumes improved, but the EUR 8.1m gross profit didn’t meet our EUR 9.6m estimate while comparable EBITDA was EUR 4.5m vs the EUR 6.6m/6.0m Evli/cons. estimates. The result was somewhat softer than the company itself expected, and the Finnish political strikes also had a negative impact on EBITDA (although less than EUR 0.5m) as there were some additional operating cost elements. Europe meanwhile performed better than we estimated as Italian and Spanish plants produced some of the volumes which Finland couldn’t. Sales margins improved while nonwovens prices declined in the wake of lower raw materials prices.
We estimate EUR 12m EBITDA gain for the year
Sales margins should hold also in the short-term, despite higher raw materials prices going forward and the common lag in pricing mechanisms, as new sustainable products represent a significant share of sales mix; we believe sales margins should have upside again in H2’24 even if Q2 may be a bit more challenging quarter from this perspective. H2 volumes are often higher than in H1 as the autumn months provide some seasonal demand tailwinds. The EUR 10m Bethune investment will add sustainable capacity in H1’25 and should have a relatively short payback period as Suominen has developed a comprehensive portfolio of such products. Market outlook is quite flat and continued recovery relies on Suominen’s own initiatives. In our view all the factors at work suggest Suominen’s earnings recovery will continue throughout the year, however we make some downward revisions to our margin estimates due to the softness seen in Q1 figures.
Valuation continues to demand patience at least until H2
Suominen is valued 20x EV/EBIT on our FY ’24 estimates as earnings continue to recover from the very low comparison period. We estimate the company to reach above EUR 20m EBIT next year, assuming gross margin reaches 10% by the end of this year. On that basis Suominen would be valued some 8x EV/EBIT on our FY ’25 estimates, which isn’t too high but the valuation demands patience. We retain our EUR 2.5 TP and HOLD rating.