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Suominen - Patient earnings recovery

Suominen’s earnings recovery continues, but the pace seems to be still somewhat slower than we previously estimated.

Earnings trend up, but from a low base and not very fast

Suominen’s EUR 114.9m Q4 revenue was above the EUR 112.0m/112.0m Evli/cons. estimates as Europe declined less than expected. Volumes continued to recover after and amid a still challenging environment when supply has remained plentiful relative to demand. European volume outlook has improved a bit while the situation is still more favorable in the US, however even there the market and competitive situation is not actually providing tailwinds. Suominen can’t count on the market lifting its performance but needs to focus on commercial and operational excellence measures going forward. Gross margin showed some further improvement q/q, but at 7.3% stayed soft relative to our 9.0% estimate and hence the EUR 5.3m EBITDA also missed the EUR 7.7m/7.0m Evli/cons. estimates.

We make some further earnings estimate cuts for the year

Volumes should continue to trend upwards in H1’24 while sales margins have more room to improve, albeit somewhat marginally in our view, and together the two factors will support further recovery in gross margins. We thus expect these gradual developments to push Suominen’s gross margin around 10% by H2’24. General macro trends may not help Suominen this year, however neither should external events cause too much trouble as logistics are quite robust to e.g. the Red Sea crisis due to a localized supply base. Suominen’s earnings recovery continues, but the comparison period is low especially for H1 while it’s still unclear how steep the curve might be over the course of this year. We trim our profitability estimates for FY ’24 by another EUR 4m. We estimate the earnings gain pace to be roughly EUR 1-2m over each quarter in FY ’24.

Valuation not yet too high, yet requires some patience

Suominen is valued 12x EV/EBIT on our FY ’24 estimates, which in our view lands at the upper end of the neutral range in the light of the current cycle position. The EUR 36m EBITDA we estimate for the year leaves further upside potential and thus valuation isn’t yet too high considering potential in the longer-term perspective. Our TP is EUR 2.5 (2.7) as we retain our HOLD rating.

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