Suominen - Volume growth remains crucial
Suominen reports Q1 results on May 7. Earnings should have plenty of room to recover from the low levels, however wider market developments still don’t seem to offer much support.
Pricing should be relatively stable, a lot more volumes needed
Suominen’s Q4 showed incremental positive development in terms of nonwovens sales prices and product mix, but volumes remained disappointingly low. We expect prices and mix to have remained quite stable in Q1, so the main question is related to volume recovery. From this perspective the picture is still unclear as there should be a lot more potential for volume gains across Suominen’s product portfolio, however the market may yet stay rather challenging for a while. A relevant segment of P&G saw volumes down 2% y/y, while Essity recorded a challenging Q1 for baby care products (including wipes) due to low demand and price competition. Essity however expects such products to sell better in the coming quarters, but the picture isn’t that clear for Suominen as the EMEA region also suffers from low-cost exports while Americas could potentially have supply chain issues. We estimate Q1 revenue to have grown 3% y/y, driven by Americas, and expect adj. EBITDA at EUR 5.3m.
No big market growth drivers seen right now
Raw materials prices have been relatively stable in the past year or so, and we estimate the relevant prices for Suominen increased by only a few percentage points q/q in Q1. Suominen has its local manufacturing footprint, however the US tariffs could still cause supply issues when it comes to e.g. pulp sourced from the Canadian side of the border. Many wiping brands aim to increase their product differentiation, which should help to open opportunities for Suominen’s portfolio. Suominen has already implemented some cost-efficiency measures in recent years, and we believe the road to proper earnings recovery is mainly through higher volumes and further improvements in product mix.
Slow earnings recovery demands a lot of patience
Suominen’s FY’24 EBITDA improved only marginally to EUR 17m. We expect FY’25 will see a more meaningful gain to about EUR 30m, driven by volumes and mix. On that basis Suominen would still be valued at a rather high level of 14x EV/EBIT, and so earnings would have to gain by another EUR 10m or so to bring the multiple to a more reasonable level of below 8x. We retain our EUR 2.0 TP and REDUCE rating.