Suominen - Recovery continues in H2
Suominen’s margins continued to improve in Q2, although there’s still a lot to be done before profitability has been restored to an adequate level.
Recovery continued, but EBITDA should improve a lot more
Suominen Q2 revenue grew 5% y/y to EUR 119m, which was slightly above the EUR 117m/116m Evli/cons. estimates. Sales prices declined y/y due to lower raw material prices, but American volumes grew well as the increase in the US contributed some 2/3 of the volume growth. EMEA thus wasn’t that bad either although the local market remains somewhat more challenging than the one over the Atlantic. Sales, marketing and administration expenses were rather high in Q2 due to certain project-related items and hence the EUR 5.0m comparable EBITDA remained soft relative to the EUR 6.1m/5.5m Evli/cons. estimates even if the EUR 8.9m gross profit was very close to our EUR 9.1m estimate.
The market is stable enough for more sustainable capacity
Raw materials prices may now be stabilizing following their H1’24 rebound, after the deflationary stretch last year. Americas’ H2 looks as expected as it’s a seasonally stronger period than H1, and we estimate y/y revenue growth to accelerate to high single-digits or low double-digits then as the comparison period had still soft volumes as well as declining sales prices. We believe volume improvement will continue q/q and y/y at least over the next few quarters, in addition to which sales prices should see some gains. This would further support gross margins and we estimate Q3 EBITDA at EUR 7.7m. It would represent further earnings recovery but would still be quite low as in our view annual EBITDA should be headed well above EUR 40m (around 9% margin) in the medium term. The EUR 20m investment in Alicante is to be completed in H2’25 and will add sustainable capacity, which helps sales mix. The general market is still not very favorable in Europe, but biodegradable products remain a key niche for Suominen.
Valuation is not particularly high, yet recovery takes time
Suominen is valued a bit below 9x EV/EBIT on our FY ’25 estimates; we estimate additional EUR 16m earnings gain for next year, on top of the EUR 10m improvement we expect for FY ’24. In our view the multiples are acceptable since earnings should have further long-term upside. We retain our EUR 2.5 TP and BUY rating.