Suominen - Clean and shining

Suominen revised its outlook upwards for the second time this year. We update our estimates; the announcement has only minor impact in quantitative terms but turns us more confident towards Suominen’s sustainable profitability improvement. Our TP is now EUR 4.25 (3.25) and thus we rate the shares BUY (HOLD).

The update reflects conviction in value-add wiping demand
Suominen previously expected comparable FY ‘20 EBIT to improve clearly from ‘19. The updated outlook guides significant improvement. The figure amounted to EUR 8.1m last year, and we now expect Suominen to post EUR 24.0m this year (our previous estimate was EUR 23.1m). In our view the outlook update therefore has somewhat limited information value as such, although it’s worth mentioning that Suominen also removed the previous disclaimer according to which the result estimate for the second half of the year was uncertain due to the pandemic. In other words, the announcement does not change our estimates quantitatively as much as it does qualitatively. Suominen did not comment on market developments, but in our view the update reflects certain value-add wiping product categories’, namely those meant for household and workplace uses, improved prospects due to the pandemic.

Our higher gross margin estimate offsets weaker USD
During the last two months USD has declined by about 5% relative to EUR. We thus update our revenue estimate for this year downwards to EUR 443m from the previous EUR 454m. There have been no meaningful interim changes in raw materials prices, and as we expect value-add wiping product demand to remain brisk we revise our FY ’20 gross margin estimate up by some 50bps to 12.1%. These changes’ net effect on our FY ’20 EBIT estimate is an increase to the tune of EUR 0.9m.

Valuation is attractive as profit recovery gains traction
Suominen currently trades at about 5.7x and 4.8x EV/EBITDA on our estimates for this year and next. In our view higher multiples are now warranted as profitability improvement looks increasingly robust. Our new EUR 4.25 (3.25) TP implies the respective multiples at levels of 6.2x and 5.3x. Suominen is also valued clearly below peer group multiples. We now rate the shares BUY (HOLD).

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