Suominen - A lot to do for earnings recovery
Suominen had published some details of its Q3 earnings before the actual release in connection with the negative profit warning; the Q3 report surprised positively in the sense that EBITDA would have almost doubled to more than EUR 6m without the US plant incidents, but a negative was the still rather cautious outlook on Q4 earnings development.
The Q3 report contained both positives and negatives
Suominen Q3 revenue fell 11% y/y to EUR 100m while comparable EBITDA was EUR 3.4m, as was known ahead of the report. The lower top line was due to volumes, and EBITDA would have been EUR 2.8m higher without the incidents at two plants in the US. Sales margins continued to increase, but there’s still competition and Suominen needs to do more in terms of operational efficiency so that it can achieve meaningful earnings recovery. Suominen’s guidance and comments imply Q4 EBITDA will see only modest improvement from the current low levels.
Suominen needs to pull all the earnings growth levers now
Q4 demand is expected to be lower than that of Q3, and the US production line restart will still incur some ramp-up costs so that Q4 EBITDA is likely to remain below EUR 6m. Suominen has already taken many cost measures over recent years, but in our view the new CEO’s initial comments seem to suggest operational efficiency is still not quite where it needs to be; in our view volume growth remains perhaps the single most important lever for earnings recovery, and hence the role of the US market is more important than Europe as it has better demand outlook and some attractive market niches like moist toilet tissue, but cost competitiveness is something Suominen can itself control more than customer volume demand.
A clear earnings recovery is already priced in
We make some further downward estimate revisions following the report as a more significant volume recovery still does not appear imminent. We estimate FY’25 EBITDA at about EUR 16m; Suominen is valued a bit above 10x EV/EBIT on our FY’26 estimates, when we expect earnings to improve roughly EUR 20m. Suominen should be able to achieve sustained earnings recovery from now on, but the multiples remain on the high side in the short and medium term considering the uncertainty around the improvement gradient. Our new TP is EUR 1.6 (1.8) as we retain REDUCE rating.