Suominen - Soft start for the year

Suominen’s Q4 performance didn’t meet estimates, at least in terms of profitability, and FY ’22 guidance also disappointed as the issues which surfaced last summer continue to trouble in the short-term.

Certain customers still suffer from high inventories
Suominen’s Q4 revenue grew by 4% y/y to EUR 115.6m, ahead of the EUR 113.0m/113.3m Evli/cons. estimates. Europe amounted close to what we expected, while Americas was ahead, but gross profit was only EUR 8.4m vs our EUR 14.4m estimate. Suominen’s pricing improved but not to the extent we expected, and hence high variable costs ate margins. The pandemic also caused plant-level problems. The EUR 9.0m EBITDA benefited from cost cuts but didn’t meet the EUR 12.1m/12.6m Evli/cons. estimates. Some customers’ high demand resumed, but others continued to languish as inventories remained elevated. There’s now a short-term see-saw pattern in demand which manifests itself in y/y lower Q1’22 top line. The demand issues are very customer-specific but happen to impact Americas for the most part. There seem to have been no major changes in this respect. Suominen expects end consumer demand to remain above pre-pandemic levels, and the picture should again improve in Q2.
We cut especially H1’22 estimates
Raw materials prices have overall stabilized, but there’s been mixed development as e.g. pulp has declined while viscose has advanced. Meanwhile US logistics issues persist, and transportation costs remain high. The completed investments, on the other hand, pose no major ramp-up costs. We cut our FY ’22 revenue estimate to EUR 455m (prev. EUR 467m) and that for EBITDA to EUR 40.8m (prev. EUR 50.9m). We cut FY ’23 profitability estimates by ca. EUR 2-3m. The estimate cuts concern particularly H1’22, from where we expect improvement.
Margins and multiples are low relative to peers
Suominen’s multiples remained low before the report, but they still didn’t sufficiently reflect the persistent current uncertainty. Suominen is valued around 5.0-6.5x EV/EBITDA and 8.0-12.5x EV/EBIT on our FY ’22-23 estimates. The absolute multiples are not that low for this year, but we expect improvement over the year; Suominen remains valued below peers while margins are also low. Our new TP is EUR 5 (6); we retain our BUY rating.

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