Suominen - Positive drivers are priced in
Suominen reports Q3 results on Oct 29. H1’25 saw an earnings recovery setback so that H2 must show meaningful gains if Suominen is to reach its FY’25 guidance. We believe this is possible since there are such drivers as recovering volumes, improving margins and cost cuts, however current valuation already very much demands higher earnings.
H2’25 needs to be clearly better than H1
Suominen’s Q2 proved another disappointment and was largely due to the US market where nonwovens customers stocked their inventories with Chinese supplies. This loss of volumes caused Suominen’s revenue to fall 16% y/y. Some volume improvement was however already seen towards the end of Q2. We therefore expect more stable Q3 revenue at EUR 107m, or down 4% y/y. Suominen could still see its FY’25 EBITDA increase y/y, even though H1’25 was down by some EUR 2m y/y, as H2 should have certain earnings drivers (most importantly recovering volumes). We estimate Q3 EBITDA at EUR 5.6m, up by more than EUR 2m y/y.
Volumes, margins and cost efficiency are all important
One positive aspect of the Q2 report was the relatively strong sales margin performance, which might well continue towards next year as raw materials prices have declined by a couple more percentage points over the last months. This trend, combined with recovering volumes, should finally drive more meaningful gross margin improvement. Suominen could then reach positive mid-single digit EBIT margins next year, assuming it achieves 10% gross margin. In our view Suominen has already done a lot in terms of finding cost savings, so the new CEO is likely to focus more on potential volume growth drivers. The nonwovens market however remains well-supplied and hence it’s not clear which segments could drive more significant volume growth for Suominen, yet strategy updates are to be expected quite soon.
Upside potential appears quite limited for now
Suominen is valued more than 9x EV/EBIT on our FY’26 estimates, which isn’t yet a particularly low level considering how much uncertainty a more sustained and accelerated earnings recovery involves. There’s still a risk of negative guidance revision, but even if that doesn’t materialize positive development trends seem already largely priced in. We retain our EUR 1.8 TP and REDUCE rating.