Suominen - Still improving, albeit slowly
Suominen’s Q1 results didn’t contain very big surprises, although profitability remained low. Earnings are likely to continue their recovery, but the market remains challenging and doesn’t offer much help in that respect.
On a slowly improving track
Suominen’s EUR 117.5m Q1 revenue was slightly above the EUR 117.0m/115.4m Evli/cons. estimates, while the EUR 8.3m gross profit didn’t land that much short of our EUR 8.8m estimate, yet the EUR 4.1m comparable EBITDA was still soft relative to the EUR 5.3m/4.2m Evli/cons. estimates due to general operating expenses. Suominen initiates a cost savings program which is to bring EUR 10m in savings on top of other cost measures the company has implemented over the past few years.
Earnings recover more, but the market remains supplied
In our view Suominen has improving nonwovens pricing and product mix on its side now, so sales margins should have some more upside. Higher asset utilization through recovering volumes would help gross margin further, but volumes continued to lag as sales volume was down 4% y/y and slightly down q/q. The trade war doesn’t have any marked direct effect on Suominen’s operations or its latest production line investments in the US and Spain, however the general uncertainty and supply chain disruptions do have an impact and limit volume recovery prospects. We believe the added cost measures are a response to this latest demand headwind.
Only small estimate revisions following the report
Suominen has to wait further for a more pronounced volume recovery as the market seems to remain quite challenging across its geographies and product portfolio. Bottom line has a lot more potential to improve from the low comparison figures, but even an earnings gain of some EUR 10m doesn’t turn the EV/EBIT multiples particularly low. Suominen’s valuation hence continues to require patience as there doesn’t seem to be any likely big earnings drivers, at least such that would make a large enough difference in the short-term. We have slightly reduced our earnings estimates for the year, and we now estimate FY’25 EBITDA at about EUR 28m. Suominen is then valued almost 18x EV/EBIT on our FY’25 estimates, however the multiple would decline to 8x next year should more clear improvement be seen from H2’25 onwards. We retain our EUR 2.0 TP and REDUCE rating.