Suominen - Earnings rebound takes time
Suominen had some production issues in Q3, and even if those no longer bother valuation begins to look a bit stretched.
Underlying profitability trends still rather tepid
Suominen’s EUR 111.6m Q3 revenue fell short of the EUR 119.0m/114.7m Evli/cons. estimates as Americas declined 2% y/y while Europe grew 18%; in our view the softness was attributable to the former. There were operational challenges, causing both lost margins and higher costs to the tune of EUR 3.0m. The small investments and procedural changes used to address the issues were effective, and there should be no more impact going forward. The EUR 3.3m comparable EBITDA would have remained a bit soft relative to the EUR 7.9m/6.8m Evli/cons. estimates even without the issues but would have improved by some EUR 1m y/y; in our view such a pace shouldn’t be too hard to achieve given the low comparison period.
Volume growth should continue, but there are mixed signals
The outlook for volume rebound may no more be quite as strong as it might have been earlier this year, but wiping brands are still seeing a stabilizing market where prices are no longer rising (and even slightly declining in certain cases) while volumes have again room to grow. The data points are somewhat mixed in this sense as the relevant segments of e.g. Clorox and Essity have recently seen continued positive volume development while those of Kimberly-Clark and P&G haven’t developed as favorably. We believe the US market continues to support volume growth in the current environment, and Suominen remains positioned there for further rebound as its strategy relies on localized regional supply chains. In our view Suominen’s earnings thus continue to rebound in Q4 (even if a flat q/q or declining y/y EBITDA would still be in line with the guidance) and FY’25, however we make some additional downward revisions.
Earnings need to gain quite a lot to turn multiples attractive
We cut our Q4 earnings estimate by EUR 1.5m and that of FY’25 by EUR 5m. Suominen is thus valued above 10x EV/EBIT on our FY’25 estimates, which isn’t alarmingly expensive in the light of the further potential beyond that year yet already quite stretched considering the uncertainty around the improvement trend. Our new TP is EUR 2.2 (2.5); our rating is now SELL (HOLD).