Suominen - Volumes and margins improve
Prices have continued to decrease while volumes increase
Suominen’s Q2 results continued to be weak as there were not yet enough volume gains. Supply chain inventories should however continue to melt after a prolonged period of disruption but also due to the seasonally high demand for hygiene products seen in H2. Suominen has implemented various measures in response to the extended tough market conditions (especially in Europe), whereas in the US the focus is still around key account restocking and a recovery in delivery volumes. Nonwovens prices continue to adjust down following raw materials prices while volumes improve, and as a result Suominen’s top line should remain rather flat going forward. The US will drive Americas’ revenue this year, whereas there’s still uncertainty around European softening. We estimate Q3 revenue at EUR 129m and EBITDA at EUR 6.2m.
Higher volumes and sales margins about to lift earnings
Raw materials prices have declined for more than a year now. We find Suominen’s raw materials prices to have remained rather flat in Q3, however they may have already bottomed out. In our view the environment should still be quite favorable for Suominen from the perspective of sales margins; higher volumes and resulting utilization rates should drive gross margins closer to 10% over H2. The apparent stabilization in raw materials prices may also signal an end to the destocking cycle, which would support volume rebound over the course of H2. We estimate stable top line development and 10% gross margins to lead to roughly 5% EBIT margins going forward to next year.
Earnings improvement has been anticipated
Suominen’s comparison figures aren’t challenging and hence H2 is bound to show some improvement so long as higher volumes continue to come through. Suominen is valued about 7x EV/EBIT on our FY ’24 estimate of some 5% EBIT margin, which we consider a neutral level as Suominen has historically averaged 10% gross margins. We retain our EUR 2.7 TP and HOLD rating.