Suominen - Improving again after challenges

Suominen reports Q4 results on Feb 3. It’s clear Q4 will be a lot better than previous quarters, while FY ’23 profitability continues to improve. Many factors now support margins, but valuation also reflects better performance.

US volumes recover while raw materials prices decline

Suominen’s Q3’22 top line recovered a lot even when its early part remained difficult in the US. We expect the continued rebound to have helped Suominen grow 21% y/y to EUR 140m in Q4 revenue. We estimate Suominen’s raw materials prices to have declined by almost 10% q/q in Q4, which together with higher delivery volumes and relatively stable sales prices should have helped the company to a significant profitability improvement not only q/q but also y/y. We estimate Q4 EBITDA at EUR 11.8m. USD has lately weakened by some 10% against EUR but is still relatively strong compared to year ago. We therefore believe the US business to drive growth also this year.

European volumes seem unlikely to grow much this year

Suominen plans to close another of its plants in Italy. European demand for traditional wipes is soft, while Turkish and Chinese imports have added a lot of supply within such segments, and the Mozzate plant isn’t positioned to produce sustainable nonwovens. Italy’s position is also challenging in terms of energy costs. The closure would result in EUR 9m in one-offs and EUR 3m in added annual EBITDA as utilization rates improve. Q4’22 and Q1’23 energy costs in Europe might prove to be a bit lower than feared due to the mild winter, whereas the situation in the US may have been more challenging relative to expectations. Suominen should guide at least some EBITDA improvement for this year as H1’22 comparison base is so weak, however the Q4 report might be a bit too early to give very strong guidance.

Valuation neutral, uncertainties around improvement pace

The closure and lower USD represent some estimate headwinds, but we would still expect Suominen to grow by at least a few percentage points this year. Suominen’s valuation (8x EV/EBIT on our FY ’23 estimates) is not very challenging as profitability continues to improve from the lows, driven by higher top line and lower raw materials prices, but valuation already reflects improvement while a lot of uncertainty remains around its pace. We update our TP to EUR 3.5 (3.0); our rating is now HOLD (BUY).

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