Suominen - Earnings recovery should gather pace
Suominen’s Q2 results are due Aug 9. H1 has low comparison figures, while H2 should also have scope for more recovery.
Earnings should continue to recover over the year
Suominen’s Q1 earnings improved y/y, yet the pace wasn’t fast and EBITDA in fact declined a bit q/q as there were additional costs due to the Finnish strikes; excluding such costs EBITDA would have remained roughly flat q/q, however it would have been below estimates even then. Suominen has lately announced an additional EUR 1.5m in cost cuts, which will be useful but not by themselves enough since we believe the company should see its earnings gain by some EUR 30m over the medium term. Suominen has found cost savings even before the latest announcement but improving capacity utilization and higher margins (driven by sustainable products) are in our view more important drivers. We expect Q2 revenue to have grown by 4% y/y to EUR 117m, while we estimate EBITDA at EUR 6.1m. H1’24 has very low comparison figures, so y/y improvement isn’t challenging but H2 should also see further gains especially if raw materials prices stabilize.
Stabilizing market could help earnings especially in H2
Pulp prices have gained at a double-digit rate since late last year while oil-based raw materials prices have developed relatively flat, although they are slightly up so far this year, so that we estimate Suominen’s total raw materials prices are increasing once again after the decline seen last year. Higher raw materials prices remain a short-term challenge for sales margins but they also reflect improved end-market demand. We thus expect earnings to recover at a rather steady rate over the course of this year. We believe there’s a reasonable chance Suominen will specify its guidance later this year assuming there are no further significant setbacks. We estimate around EUR 12m earnings gain for the year, which still leaves plenty of upside potential for the coming years.
Earnings multiples appear quite neutral
Suominen is valued 21x EV/EBIT on our FY ’24 estimates as earnings are only now recovering after a couple of challenging years. The multiple is some 8.5x on our FY ’25 estimates, which we consider a fair level as the respective 9% EBITDA margin would be a significant improvement yet still somewhat modest relative to long-term potential. We retain our EUR 2.5 TP and HOLD rating.