Suominen - Looking for margin improvement

Some improvement should already be visible

Suominen’s Q1 figures were very soft, largely as expected although the EUR 3.3m EBITDA was somewhat below estimates. Q2 profitability is to remain at a modest level due to the spike in European energy costs, which in the case of Suominen amounts to mostly electricity. We believe the energy surcharge Suominen announced in Q1 will help Q2 profitability to improve q/q, however we estimate EBITDA to have declined more than 50% y/y to EUR 7.0m. We note raw materials prices surged at double-digit rates in H1’21, and even though there were some signs of stabilization before the war price levels have continued to advance over the spring and summer months. Suominen’s nonwovens pricing therefore continues to catch up with higher raw materials costs at least over this summer.

H2’22 EBITDA should be clearly better than the recent lows

We make only marginal estimate revisions ahead of the report. US demand may still fluctuate on a quarterly level due to the supply chain issues, but we expect Americas revenue to be up by 4% this year relative to last, when especially Q3 figures received a hit. Strong dollar will help top line and we estimate 6% growth for this year. The estimated EUR 469m revenue would be above the previous record of EUR 459m seen in FY ’20, however weak H1’22 profitability means FY ’22 EBITDA will stay far below the previous record. Suominen’s EBITDA amounted to only EUR 13m in H2’21 and we estimate the figure to have declined even lower, to EUR 10m, in H1’22. It remains unclear how much the figure will improve in H2’22 as cost inflation has not abated from the agenda; we estimate the figure at EUR 23m.

Valuation multiples are low on modest earnings levels

Suominen’s earnings can deviate a lot from those of its peers, but valuation is by no means challenging considering the low level from which profitability is likely to bottom out this year. Suominen trades around 4x EV/EBITDA and 6.5x EV/EBIT on our FY ’23 estimates. The level implies a discount of 50% relative to peers while we don’t consider our margin estimates for FY ’23 very challenging. We retain our EUR 3.5 TP and BUY rating.