Suominen - Earnings need to gain quite a bit
Suominen is very likely to see additional earnings recovery from the low levels, yet valuation also clearly expects more.
More room to improve clearly exists
Suominen’s EUR 119m Q4 revenue was soft vs the EUR 122m/119m Evli/cons. estimates, while the EUR 7.5m gross profit fell EUR 3.5m short of our estimate and thus the EUR 4.2m comparable EBITDA also came in below the EUR 7.5m/7.0m Evli/cons. estimates. There was marginal improvement in terms of sales prices and product mix, however volumes declined slightly and so earnings didn’t continue to gain y/y despite the still undemanding comparison figures. FY’24 results weren’t yet expected to be very high, and the softness in H2’24 means additional meaningful gains should be seen this year. We expect Americas to grow by 7% this year, while EMEA may stay rather flat as competition has intensified due to low-cost exports.
EBITDA should roughly double towards next year
We trim our FY’25 earnings estimates by more than EUR 4m as gross margin stayed at a level lower than we expected. We estimate the margin will continue to gain towards 10% and above over the course of the year so that Suominen would average 9.5% for FY’25, which would be in line with the historical rate over the past decade. According to our estimates the achievement of such a margin would translate to an earnings gain of some EUR 15m y/y, a steep rise relative to the low levels seen in recent years but should be achievable if product mix and sales margins as well as volumes all continue to develop favorably. In our view the EUR 30m announced investments in the US and Spain aren’t too large to complicate operational performance this year.
Valuation demands significantly higher earnings levels
Suominen is valued just below 14x EV/EBIT on our FY’25 estimates, and in our view the multiples reflect expectations of EBITDA meaningfully above the EUR 15-17m levels seen in recent years. We believe there’s a good chance Suominen will specify its FY’25 earnings guidance later this year for such an achievement, however even in that case there might not be any very large re-rating. In our view Suominen is very likely to see further EBITDA improvement this year, but a gain of less than EUR 10m y/y would still not be that much. Our new TP is EUR 2.0 (2.1) as we retain our REDUCE rating.