Suominen - Upside rests on volume gains

Suominen’s earnings still missed estimates as top line remained very soft. The market challenges continue, while raw materials dynamics and Suominen’s own actions have also helped margins. We see increased uncertainty around earnings improvement pace going forward.

Some more improvement to be expected going forward

Suominen’s Q3 revenue fell 19% y/y to EUR 106m vs the EUR 129m/120m Evli/cons estimates. Americas declined and Europe even more so as the closure of the Mozzate plant caused some more volume softness. Low raw materials prices further dragged nonwovens prices down, however sales margins have improved due to the mechanism pricing lag. Suominen’s EUR 5.2m comparable EBITDA still missed our EUR 6.2m estimate, however the 6% gross margin (a gain of more than 300bps q/q) was relatively strong in the light of the considerable top line softness. In our view this is partly a result of the current raw materials market dynamic but also reflects Suominen’s own actions to improve mix, in addition to finding additional cost measures.

We cut FY ’24 earnings estimates by additional EUR 4m

European volumes are to remain soft; the market continues to be challenging also in the US, although less so. The challenges have been prolonged for a while, and as a result Suominen’s own actions to help margins have gained even more importance. The Mozzate closure achieved cost reductions, and its volumes have been transferred to other plants, but some volumes have also slipped. Suominen retains guidance for higher FY ‘23 EBITDA although the game remains flat so far into the year. We revise our estimates down due to the lower-than-estimated revenue levels; we estimate Q4 gross margin to gain another 300bps even if top line stays at a similarly low level as seen over the course of this year. We thus estimate Q4 EBITDA at EUR 7.9m.

A lot of uncertainty around next year’s earnings gain pace

Valued at 8.5x EV/EBIT on our FY ’24 estimates, which is not a particularly low multiple, the valuation reflects improvement going forward. Better market conditions, on top of Suominen’s own measures, could drive significantly higher earnings next year. Higher volumes would support valuation, but uncertainty around their recovery and margin gains pace still limit upside potential. Our TP remains EUR 2.7 as we retain HOLD rating.

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