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Financial overview

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Suominen - CMD notes; wiping trends are strong

03.09.2020 | Company update

Suominen hosted a virtual CMD yesterday. Although there were no major updates the event nevertheless added some color on recent trends. Our TP remains EUR 5.5, rating BUY.

Volumes are up globally due to cleaning and disinfection

The pandemic has lifted volumes in all markets and Suominen expects elevated demand to persist at least for the next few months. Permanently higher demand is likely within cleaning and disinfection products. Suominen estimates it has an above 15% wiping market share in Europe and is thus the leading player. All segments have enjoyed strong demand, household wiping especially so. Americas’ development has been similar and stores in the US still often have trouble shelving enough household cleaning products. Nielsen Homescan estimates 79% of US households now consider disinfecting wipes a staple item (vs 50% prior to the outbreak). Certain interesting consumer behavior anecdotes were discussed e.g. how Uber riders can now check before boarding whether the ride will feature Clorox disinfecting wipes. Luckily the new assets in Bethune and Green Bay were ready to meet surging demand. Indeed, the plant in Bethune was able to finally reach performance targets. In general, Suominen aims to grow with its current major customers and we see the company well-positioned to capture above market growth (thanks to competitive product portfolio), according to the long-term financial targets updated previously this year. Margins should stay relatively high in the short-term and Suominen might even be able to defend its nonwovens pricing, despite lower raw materials prices, as high wiping demand continues to persist together with the pandemic.

Our estimates remain unchanged for now

The CMD did not lead us to revise our estimates at this point. We expect some softening in gross margin and thus in EBITDA following the exceptionally strong Q2 (Suominen posted a 14.7% EBITDA margin, compared to the above 12% long-term target).

Further improvement not very easy but multiples are low

2020 will be a new record year for Suominen in terms of financial performance and in our view further gain in EBITDA next year can prove tricky. However, we continue to view current valuation attractive (EV/EBITDA is ca. 5.5x on our estimates for this year and next). We retain our EUR 5.5 TP and BUY rating.

Suominen - Exceptional performance

13.08.2020 | Company update

Suominen’s Q2 was way above our estimates. The major question now is where gross margin settles as the dance between nonwovens and raw materials prices plays out. We have upgraded our estimates, our new TP is EUR 5.50 (4.75) and we retain our BUY rating as multiples remain low.

Q2 performance was in our view exceptionally strong

Suominen posted EUR 122.2m in Q2 revenue (up 18% y/y and compared to our EUR 115.0m estimate), a record high despite lower nonwovens prices (reflecting soft raw materials) as volumes grew considerably due to high wiping demand. Both Americas and Europe did brisk volumes and posted revenues respectively at EUR 77.2m (up 19% y/y) and EUR 45.0m (up 16% y/y). Gross margin also increased almost another 400bps q/q to 16.0%. We note this is a record figure (vs e.g. 14.7% GM back in Q3’14) and likely not sustainable long-term. Record revenue and gross margin led to EUR 19.5m gross profit vs our EUR 14.4m estimate. SG&A and R&D remained flat at EUR 7.8m and thus the EUR 12.4m EBIT trounced our EUR 6.8m estimate.

We expect some softening in gross margin going forward

Suominen’s H1 was unexpectedly strong as improving product mix, production efficiency and low raw materials prices led to big margin gains. The pandemic also helped business as demand for wipes increased and Suominen was able to meet the challenge. However, production volumes will be lower in H2 due to scheduled maintenance stoppages at several plants. We nevertheless continue to see the demand and volume outlook strong since the pandemic is unlikely to fade away soon. With respect to profitability we expect the gross margin to have topped out. We don’t expect significant downward correction in the short-term as nonwovens and raw materials prices are in practice highly correlated. Given the current price data we expect Q3 gross margin at 15% and Q3 EBIT thus at EUR 9.8m.

Multiples still quite reasonable on our updated estimates

Suominen also announced an EUR 8m investment in Cressa, Italy. The production line upgrade will enhance capacity and seems a straightforward measure to address growing demand. All in all, we see further upside potential despite sharp rerating this year. On our updated estimates Suominen now trades slightly below 6x EV/EBITDA FY ’20. Our new TP is EUR 5.50 (4.75), rating BUY.

Suominen - Crushed our estimates

12.08.2020 | Earnings Flash

Suominen’s Q2 results wiped the table clean with our estimates.

  • Suominen Q2 revenue was EUR 122.2m while we had estimated EUR 115.0m. Revenue thus grew 18% y/y and reached a record on a quarterly basis. Nonwovens delivery volumes increased considerably while prices decreased following lower raw material prices.
  • Gross profit stood at EUR 19.5m vs our EUR 14.4m estimate. Gross margin was therefore 16.0% compared to our 12.5% expectation. While nonwovens prices decreased lower raw material and other direct product costs more than compensated.
  • Q2 EBIT amounted to EUR 12.4m compared to our EUR 6.8m expectation. EBIT thus more than quadrupled compared to year ago.
  • In terms of guidance Suominen expects 2020 comparable operating profit to improve significantly from 2019 (no change).

Suominen - Profitability outlook is now strong

06.08.2020 | Preview

Suominen reports Q2 results on Wed, Aug 12. We have slightly lowered our revenue estimates due to a currency headwind, while on the other hand we now expect gross margin to have improved modestly q/q also in Q2. Our new TP is EUR 4.75 (4.25), and thus we reiterate our BUY rating.

Raw materials prices imply gross margin should hold high

Suominen posted a big gross margin jump in Q1 as the figure gained almost 400bps q/q to 12.1%. Improved product mix and production efficiency as well as low raw materials prices fueled the rise. Moreover, Suominen upgraded FY ’20 outlook in June by changing the wording from clear to significant improvement in comparable EBIT. The update had only a minor impact on our estimates since we changed our FY ’20 EBIT estimate from EUR 23.1m to EUR 24.0m. Perhaps more important was the fact that Suominen removed the previous disclaimer according to which estimating the result for H2 was hard due to the pandemic. It seems Suominen’s strategy is proceeding according to plan and financial performance is on a solid upward trend thanks to strong outlook for value-add end-uses such as household and workplace wipes. With respect to raw materials prices Suominen is unlikely to suffer cost inflation pressure for a while. We see the outlook for pulp prices muted, while the same is only true at best for oil-based inputs polyester and polypropylene. In fact, raw materials prices have developed so soft Suominen faces some negative pressure on nonwovens pricing. We expect gross margin further improved modestly to 12.5% in Q2, and see the figure settling on this level in the short-term.

Recent dollar weakness a (small) negative for top line

The dollar has lately declined by some 5% against the euro, the implication being a negative translation impact on US revenue. We update our estimates to reflect the headwind, which we estimate at some EUR 10m on an annual level. The overall result of our update is that we now estimate Q2 EBIT at EUR 6.8m (previously EUR 6.2m). We now see FY ’20 EBIT at EUR 24.4m.

Multiples are low while figures are on a solid trend up

Suominen trades some 6x EV/EBITDA on our estimates for this year while the multiple for next year is about 5.5x. We view these multiples attractive now that profitability is on a steep improvement path. Our TP is now EUR 4.75 (4.25), remain BUY.

Suominen - Clean and shining

25.06.2020 | Company update

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).

Suominen - Long-term story gains more ground

24.04.2020 | Company update

Suominen’s Q1 revenue only slightly exceeded our estimate but as gross margin improved close to 400bps EBIT came in almost double our estimate. Suominen upgraded FY ’20 EBIT guidance. We have updated our estimates, and our new TP is EUR 3.25 (2.50), rating now HOLD (SELL).

Profitability would have jumped even without the pandemic

Suominen reported flat y/y Q1 revenue at EUR 110.2m, while our estimate was EUR 108.0m. Suominen says its sustainable products sales are developing well (new products contributed more than 25% of sales vs 20% previously). The investment in Green Bay, WI plant helped volumes and contributed to a more favorable i.e. higher quality product mix. The pandemic also began to have a positive effect on volumes towards the end of Q1. Especially cleaning and disinfection applications demand has increased. Nonwovens demand in general has received a boost due to applications like surgical drapes and face masks, however such products represent relatively small business for Suominen. New products, improved production and raw material efficiency as well as low raw material prices together lifted gross margin almost 400bps (we had expected only slight improvement), and thus EBIT amounted to EUR 5.7m vs our EUR 2.9m estimate.

We now expect FY ’20 EBIT at EUR 23m (prev. EUR 12m)

Suominen sees Q2 another strong quarter, and thus updated FY ’20 guidance, now guiding clear EBIT improvement (previously improving) even if there’s much uncertainty with regards to H2’20 as the demand surge induced by the pandemic may cool down. Nonwovens prices will adjust with a few months’ time lag to accommodate changes in raw materials prices. We see some downward pressure on Q2 gross margin due to lower nonwovens prices, expecting a 60bps decline to 11.5%. So far Suominen’s operations have run basically normal. There could be raw material shortages and Suominen or its customers might have to close plants due to the pandemic.

Long-term story receives a boost, yet uncertainty still high

Suominen trades 5x EV/EBITDA and 10x EV/EBIT on our estimates for ‘20. In our view these are attractive levels, yet much depends on the gross margin going forward. Although new products sell well, the size of the pandemic’s positive impact is still hard to gauge. Our TP is now EUR 3.25 (2.50), rating HOLD (SELL).

Suominen - Strong EBIT and updated guidance

23.04.2020 | Earnings Flash

Suominen reported Q1 revenue slightly above our estimate, while EBIT came in double our estimate. The beat was driven by higher gross margin. Suominen updates its guidance for FY ’20, expecting EBIT to improve clearly (previously improve).

  • Q1 revenue amounted to EUR 110.2m vs our EUR 108.0m estimate. EUR 37m was attributable to Europe and EUR 73m to Americas. Nonwovens volumes increased while prices decreased along with raw materials. Suominen says the pandemic helped volumes towards the end of Q1 (for all markets) and expects extended strong demand in the short-term. In the long-term the pandemic may lead to continued increased demand for nonwovens in cleaning and disinfection applications. For now the company’s operations have been running basically normal, and nonwovens production has been classified essential.
  • Gross profit stood at EUR 13.3m while our expectation was EUR 9.2m. This means gross margin was 12.1% vs our 8.5% estimate.
  • Q1 EBIT was EUR 5.7m, compared to our EUR 2.9m estimate. The strong figure was due to higher volumes, improved production and raw materials efficiency as well as favorable raw materials prices.
  • Suominen updates its guidance, and now expects FY ’20 EBIT to improve clearly (previously improve) but notes the result estimate for H2’20 is uncertain due to the pandemic.

Suominen - The pandemic tailwind is not clear

20.04.2020 | Preview

Suominen reports Q1 results on Thu, Apr 23. We have left our estimates unchanged. We expect Suominen to perform relatively well in the current environment, however we don’t see the pandemic producing absolute gains based on current info. Our TP is EUR 2.50 (2.25), rating SELL (HOLD).

Last year was weak for European sales

Suominen’s revenue declined by 5% last year to EUR 411m as the European business lost volumes and sales fell by 13% to EUR 150m. Americas was flat. Product split held steady as baby wipes were the largest group (40%) followed by personal care and home care wipes with about a fifth each. Suominen gives no short-term sales guidance but expects EBIT to improve this year. We estimate Q1 top line to have declined by 2% y/y to EUR 108m assuming volumes have improved a bit while nonwovens prices have declined slightly along with raw materials prices. We still expect Q1 gross margin at 8.5% i.e. marginally up from the 8.3% Q4 figure. We see SGA stable, and thus expect Q1 EBIT at EUR 2.9m (EUR 3.0m a year ago). Assuming stabilizing raw materials prices and gross margins for the rest of the year, we expect FY ’20 revenue up by 3% due to improving volumes. We thus see FY ’20 EBIT at EUR 12.0m vs EUR 8.1m last year.

In our view the pandemic might not inevitably help sales

Relatively speaking Suominen should perform well amid the pandemic, but in terms of absolute gains we don’t see the picture that clear. Suominen’s recent challenges were not due to lack of nonwovens demand, but rather caused by abundance of supply. Also, customer specific considerations matter as the ten largest accounts generate 65% of sales. We see a possibility that the pandemic and its aftermath will help accelerate volume growth, which is what the company needs in order to reach its long-term financial targets. Suominen is reportedly planning to enter face mask production in Finland in co-operation with Ahlstrom-Munksjö, however in our view it’s still early to estimate and value the possible impact on bottom line.

Valuation seems to have gone ahead of itself

In our view the current share price reflects rather hasty assumptions about the pandemic’s impact on the nonwovens market. We see caution warranted as a boost to total volumes is not inevitable. Our TP is now EUR 2.50 (2.25), rating SELL (HOLD).

Suominen - Volumes haven’t stabilized yet

30.01.2020 | Company update

Suominen’s Q4 results fell short of our expectations as volume pressure continued. We have cut our estimates, our updated TP is EUR 2.25 (2.50), rating still HOLD.

Suominen’s EUR 94.5m Q4 revenue missed our estimate

Suominen’s Q4 revenue declined by 14% y/y and 12% short of our EUR 107.1m estimate. The decline was attributable to volume losses but also to lower prices (due to lower raw materials prices). Volumes were lost in the Americas, with revenue down by 6% to EUR 62m, but the drop was sharp in Europe as Q4 sales slid by 26% y/y to EUR 32m. Suominen’s customer base is concentrated as the ten largest accounts make 65% of sales. Suominen lost volumes last year as the nonwovens price hikes became effective. Suominen says certain customer accounts might still be negatively affected. Suominen reported an 8.3% gross margin in Q4, in line with our estimates. The gross profit was thus EUR 7.8m while we expected EUR 9.0m. SGA, R&D and other items were as expected, and therefore the EUR 1.1m gap in EBIT relative to our estimate (EUR 1.4m vs EUR 2.5m) was due to the low sales figure and resulting weak absolute gross profit.

Short-term growth uncertain, but EBIT should still improve

Although the Q4 sales shortfall was a disappointment relative to our expectations, the softness didn’t fundamentally alter our view towards Suominen’s wider picture as a high level of uncertainty continues to fog the outlook. Suominen doesn’t guide sales outlook for FY ’20 but expects EBIT to further improve from the FY ’19 EUR 8.1m figure. We have cut our estimates for this year. We previously estimated Suominen to achieve 5% top line growth in ’20. We now expect 3% growth. Our expectation for FY ’20 EBIT is now EUR 12.0m (previously EUR 16.1m). Nonwovens demand is expected to grow at a CAGR of more than 4% in the markets where Suominen is present. Suominen targets to grow in excess of this rate in the long-term, however the oversupply problem seems to persist at least in the short-term.

Long-term targets are hard to price in given uncertainty

In our view Suominen’s valuation is neutral considering profitability has just bottomed out. However, it’s hard to say when profitability reaches adequate levels; we retain our cautious stance. Our TP is now EUR 2.25 (2.50), rating HOLD.

Suominen - Miss due to low sales

29.01.2020 | Earnings Flash

Suominen’s top line missed our estimate as Q4 sales declined by 14% y/y due to lower volumes as well as prices. Suominen expects operating profit to improve this year compared to FY ’19 (EUR 8.1m).

  • Q4 revenue amounted to EUR 94.5m, compared to our EUR 107.1m estimate. The miss was due to higher-than-expected volume losses. Declining raw materials prices also had a negative effect.
  • Gross profit was EUR 7.8m vs our EUR 9.0m expectation. The resulting 8.3% gross margin was close to our 8.4% estimate.
  • Q4 EBIT was recorded at EUR 1.4m, whereas we expected EUR 2.5m. SG&A and R&D were basically as expected, so the earnings miss was attributable to low gross profit, which was due to weak top line.
  • The BoD’s dividend proposal for FY ’19 is EUR 0.05 per share; our expectation was EUR 0.04 per share.
  • Suominen guides FY ’20 EBIT will improve compared to ’19 (EUR 8.1m). Suominen will no longer provide sales guidance on annual level, which in our view is understandable given the recent struggles with volumes. Suominen targets long-term sales growth above that of the relevant market.

Suominen - Improvement gradient still uncertain

24.01.2020 | Preview

Suominen reports Q4 results on Wed, Jan 29. Our estimates stand unchanged. We expect positive FY ’20 guidance given ’19 figures represent a rather soft comparison base. Our TP is now EUR 2.50 (2.25), rating remains HOLD.

Expect a stable Q4 result compared to preceding quarters

We note nonwovens demand unchanged since Q3, and thus leave our estimates intact. We estimate Q4 revenue at EUR 107m i.e. down by few percent y/y due to volume losses. All the nonwovens’ raw materials prices basically flatlined during Q4 and so we expect gross margin stable at 8.4%. We also expect other costs to have remained in control and thus see EBIT at EUR 2.5m (EUR -0.4m a year ago). We see stabilizing prices and volumes helping Suominen to continued improvement with FY ‘20e EBIT at EUR 16.1m (compared to ‘19e EUR 9.2m).

FY ’20 guidance should be positive for both sales and EBIT

Although Suominen’s FY ’19 figures will likely translate to an EBIT twice that of ’18, the company’s profitability is still far off from satisfactory. We thus expect continued meaningful profitability improvement this year. Suominen recently published its new strategy and financial targets for 2020-25. The targets were moderated; Suominen now aims for sales growth above that of the relevant market. As Suominen’s markets grow ca. 3% p.a. we would expect this to imply a CAGR of some 3-5%. In order to reach the targeted above 12% EBITDA margin (which would imply an EBIT margin close to 8%) by ‘25, Suominen not only needs to achieve improved operational efficiency but also robust sales growth. We look forward to Suominen commenting on the outlook for the two currently reported geographies, Europe and Americas, as well as any color on the possible Asia expansion (about which the company has talked over the years). We would also like to hear about turning customer relationships stickier since the nonwovens markets are still well-supplied.

We update our TP but remain HOLD due to uncertainty

Our updated TP is EUR 2.50 (2.25) as peer multiples have gained in recent months. Our rating is still HOLD. Valuation starts to look attractive longer term (‘21e EV/EBITDA ~4.5x and EV/EBIT 10x) yet in our view there’s too much uncertainty. We expect Suominen to declare EUR 0.04 dividend per share for ’19.

Suominen - Profit ascent more elusive

23.10.2019 | Company update

Suominen’s Q3 EBIT, at EUR 1.1m, missed our EUR 3.8m estimate by a wide mark. Suominen achieved rather stable volumes compared to our expectations, however this was achieved at the cost of margins. While the soft results were partly due to inventory reductions and reorganization costs, we turn slightly more cautious with respect to margin estimates. Our new TP is EUR 2.25 (2.50), reiterate HOLD.

Suominen sees nonwovens markets largely stable

Suominen posted EUR 103.4m in Q3 revenue (-1% y/y), close to our EUR 104.4m estimate. The figure was helped to the tune of 3% by the strengthening of USD relative to EUR. Volume losses were moderate, the pricing of Suominen’s nonwovens remaining flat. Suominen’s profitability improvement proved modest compared to our expectations as declining raw materials prices and significant inventory reductions during Q3 led to flat pricing. Suominen recorded a 7.4% gross margin, whereas we expected 9.9%. Suominen says the inventory reductions had a EUR 0.5m negative effect on profitability i.e. the gross margin would have amounted to roughly 8% without such reductions. The company says it is now close to the targeted inventory level. Operating profit was further strained by EUR 0.2m items related to the reorganization of business areas, as Suominen now reports business for the areas Americas and Europe. FX had a negative EUR 0.6m effect through raw materials purchases.

We have adjusted our margin estimates downwards

We remain cautious following the report as margin improvement is proving harder than we expected. In order to reach a 5% operating margin, a level where corresponding returns on capital could be deemed adequate, Suominen needs to achieve both improving (or at the minimum flat) volumes and gross margin north of 10%.

Current valuation reflects modest expectations

While Q3 volumes were better than we expected, we see the softness in margins as another source of uncertainty, and thus the steepness of Suominen’s ongoing profit improvement remains clouded. We retain our HOLD rating, our new TP being EUR 2.25 (2.50).

Suominen - Inventory reductions strained profit

22.10.2019 | Earnings Flash

Suominen’s Q3 revenue came close to our expectations. However, gross margin fell clearly short of our estimate and consequently operating profit improved only rather modestly in absolute terms relative to the weak comparison period a year ago. Suominen says cash flow was strong during the quarter due to inventory reductions, however this had a negative effect on the operating result.

  • Q3 revenue stood at EUR 103.4m vs our EUR 104.4m estimate. The strengthening of USD compared to EUR contributed a positive EUR 2.7m, or 2.6%.
  • Gross profit amounted to EUR 7.7m vs our estimate of EUR 10.3m. The 7.4% gross margin was clearly below our 9.9% expectation.
  • Q3 EBIT was EUR 1.1m, whereas we expected EUR 3.8m. In other words, Suominen posted a 1.1% operating margin, compared to our 3.6% expectation.
  • Suominen cites significant inventory reductions during the quarter having had a positive impact on cash flow but a negative impact on the result.
  • Suominen reiterates its 2019 outlook, expecting flat sales and improving operating profit compared to 2018.

Suominen - Focus on volumes

16.10.2019 | Preview

Suominen posts Q3 results next week, on Tue, Oct 22. Suominen’s gross margin improved to 9.3% in Q2, and as raw material prices further slipped during Q3 we now expect the company’s gross margin at 9.9% for the quarter. However, we remind Q2 volume losses proved larger than we expected, and thus we retain our cautious view ahead of the report. Our target price remains EUR 2.50, rating HOLD.

Margin improvement story continues to solidify

The prices of key raw materials (i.e. viscose, polyester and pulp) have extended their soft streak during the recent months. European softwood pulp prices declined by more than 10% during Q3, therefore bringing the total price decline for the past year to about 25%. The price trends are roughly similar for viscose and polyester, whereas polypropylene prices have remained stable since spring. Assuming stable pricing for Suominen’s nonwovens, we have consequently made moderate upwards adjustments to our gross margin (and thus EBIT) estimates. We now expect Q3 gross margin at 9.9% (we previously expected 9.2%). This implies an EBIT of EUR 3.8m, or 3.6% operating margin (previously estimated at EUR 3.1m and 3.0%). As the pricing of raw materials registers with a lag of few months, we expect further improvement for Q4, which brings our new EBIT estimate for FY ’19 to EUR 14m (previously EUR 12m).

Q2 volume losses proved a strain on EBIT

While we are confident regarding additional improvement in gross margin, we note volume losses pose a risk for our EBIT estimates. Even though Suominen posted Q2 gross margin above our estimate (9.3% vs our 8.7% estimate), the 15% volume decline in Q2 led to EBIT falling short of our estimate by almost 20%. We expect volume losses to have amounted to 9% in Q3.

In our view valuation is neutral given the uncertainty

Suominen is currently achieving a turnaround in earnings, and trades ca. 20% below peer group multiples on our estimates for ’20 and ’21. Nevertheless, we see the uncertainty due to volume losses posing a risk for our earnings estimates. We therefore reiterate our EUR 2.50 TP and HOLD rating ahead of the report.

Suominen - Wait to see improving volumes

08.08.2019 | Company update

Suominen’s Q2 unfolded without surprises in terms of prices and input costs i.e. margins were stable. Yet volume losses were larger than we expected, and thus the EUR 104m in Q2 sales missed our EUR 113m estimate and EBIT fell short. We have revised our estimates slightly down; our TP is now EUR 2.50 (2.85), rating HOLD (BUY).

Margins continued stable, volume losses were larger in Q2

Suominen’s Q2 revenue, at EUR 104m, declined by 6% y/y and missed our estimate by 8%. Strong USD added some 3% y/y, and considering the implemented price increases, we estimate ca. 15% of delivery volumes were lost y/y (we estimate the losses to have amounted to ca. 10% in Q1). We expect Suominen to lose 10% of volumes in ‘19 (expect FY revenue to decline by 1%). We expect stable GM for the rest of ’19, and hence EBIT at EUR 12m. Suominen guides flat revenue and improving EBIT for FY ’19.

Suominen changes its business area structure

Suominen has reorganized its business areas, opting for a geographical split (Americas and Europe) instead of the previous application-based reporting (Convenience and Care). The new structure will be effective from Q3 onwards. Suominen says the new organizational model should further help improve efficiency especially when it comes to optimizing regional capacity utilization. There was scant news about Bethune, although the company said the China-US trade war could potentially help Suominen’s competitive positioning in the US market as Chinese imports are hurt by tariffs. Suominen also noted the EUR 6m capacity improvement investment in its Green Bay, WI, plant will support additional volumes from Q3 onwards. Regarding the European market, Suominen says competition among nonwovens producers remains tight but stable.

Estimates

Suominen has achieved an earnings turnaround in ’19 as improved pricing and stabilizing raw material costs have led to a clear improvement in gross margin from the lows of ’18, when the margin was hit by significantly higher input costs. The implemented price increases have, however, led to volume losses. Even though profitability has improved lately, we expect FY ’19 EBIT margin at a relatively low 2.9%. Going forward Suominen needs to achieve higher volumes in order to reach further improvement in EBIT margin. Following the Q2 report, we have revised our FY ’19 EBIT estimate down to EUR 12m (previously EUR 13m), while our revenue estimate stands at EUR 425m (EUR 436m). For ’20 we expect further improvement in EBIT margin (3.9%), assuming gradual improvement in delivery volumes.

We wait to see evidence of stabilizing (improving) volumes

Although Suominen’s valuation is not demanding (ca. 6x EV/EBITDA ‘19e vs. 6.5x historically), volume uncertainty still remains. As the price hikes pass through during ‘19, we are waiting to see evidence of stabilizing (and improving) volumes that would lead to further EBIT improvement in ‘20. We lower our TP to EUR 2.50 (2.85) due to volume uncertainty, and thus our rating is now HOLD (BUY).

Suominen - Sales miss, profitability stable

07.08.2019 | Earnings Flash

Suominen reported Q2 results with revenue missing our estimate by 8%. However, the company managed a 9.3% gross margin, which was clearly above our 8.7% estimate. At first glance we see no major surprises in the sense that margins have stabilized at higher levels, yet significant nonwovens delivery volumes were also lost. Suominen also reorganized its business areas into a new geographical reporting structure (Americas and Europe).

  • Q2 revenue amounted to EUR 103.8m vs our EUR 112.7m estimate. Revenue declined by 6% compared to previous year. USD strengthening relative to EUR contributed a positive EUR 3.4m.
  • Gross profit stood at EUR 9.7m vs our EUR 9.8m expectation. Suominen thus managed a 9.3% gross margin, whereas we expected 8.7%.
  • EBIT amounted to EUR 2.7m in Q2 vs our EUR 3.3m estimate i.e. Suominen posted a 2.6% EBIT margin (compared to our 2.9% projection).
  • Until Jun 30, Suominen’s business areas were Convenience and Care. Since Jul 1, Suominen’s business areas are Americas and Europe. More than 60% of Q2 sales were attributable to Americas.
  • Suominen reiterates its 2019 outlook, expecting 2019 sales at 2018 level while guiding improving operating profit.

Suominen - Margin gains, volume losses

30.07.2019 | Preview

Suominen reports Q2 results next week, on Wed, Aug 7. In Q1 the company’s gross margin improved to 8.1% (compared to the 6.2% low in Q4’18) as raw material costs remained stable and price hikes came into effect. We expect the gross margin improvement trend to continue throughout 2019, but the main question concerns volume losses following price hikes. We leave our previous estimates unchanged for now. Our target price still stands at EUR 2.85 per share; our new rating is BUY (HOLD).

Volume declines in focus following the hiking of prices

In our view Suominen’s declining earnings trend bottomed out in Q1 as price hikes and stabilizing raw material costs drove improvement in gross margin. Q1’19 gross margin stood at 8.1%; we expect Q2 gross margin at 8.7%. However, the company lost significant delivery volumes. We estimate Suominen’s delivery volume losses amounted to some 9% in Q1; we expect losses of similar magnitude for the remainder of 2019. Our expectation for Q2 is EUR 113m in revenue and EUR 3.3m in EBIT.

Expect flat input costs and price hikes to lift ‘19e earnings

While the EURUSD exchange rate has remained steady during the last three months, European softwood pulp prices have declined further, by about 10%. The development is beneficial from Suominen’s point of view, softwood pulp being a key nonwovens raw material. Meanwhile polypropylene prices have increased by a roughly similar percentage. According to Lenzing, viscose and polyester prices remained stable during spring (development until Apr 15). All in all, raw material costs have been flat. We expect ‘19e revenue at EUR 436m and EBIT at EUR 13.3m, assuming stable input costs for the remainder of the year.

We leave our estimates intact ahead of the report

Suominen is valued at ca. 6.0x EV/EBITDA ‘19e (on our estimates) vs historical average of 6.5x. Suominen’s peer group multiples have gained during the last three months, and although there is still uncertainty concerning delivery volumes, we consider the current valuation undemanding. We retain our TP of EUR 2.85 per share, and thus our updated rating is BUY (HOLD).

Suominen - Improvement on the cards

25.04.2019 | Company update

Suominen has disappointed expectations several quarters in a row. The company now posted EUR 3.0m Q1 EBIT, a figure clearly above our EUR 2.0m estimate. The earnings beat was driven by improved gross margin; the product of price hikes and stabilizing raw materials costs. Volume outlook is still uncertain, yet in our view Suominen’s earnings have now bottomed out. We increase our target price to EUR 2.85 (2.40) per share, while retaining our HOLD rating.

2019 volume outlook remains uncertain

The company has managed to improve its gross margin through price hikes, however this has meant losing volumes. We expected the company to lose Q1 volumes by around 5% y/y. Therefore the 9% Q1 volume decline we estimate from the disclosed figures came as a negative surprise. We had previously expected volume declines of around 8% for the remaining quarters of 2019, while estimating 7% volume decline for the whole year. We now expect 2019 volumes to decline by 9%.

History suggests 11-12% gross margin potential

Suominen achieved an 8.1% Q1 gross margin (vs. our 7.0% expectation and 7.4% a year ago). The GM had previously touched the low of 6.2% in Q4’18. We expect the 2019 GM to improve to 8.7% as higher prices continue to pass through. We estimate Suominen to reach a roughly 11% GM by 2021 as the recent years’ oversupply situation balances out. According to our analysis, this would imply an EBIT margin of ca. 5% in 2021E.

We increase our target price to EUR 2.85 per share

We expect Suominen to reach 3.1% EBIT margin in 2019, while estimating further margin upside to the tune of 200bps by 2021 on the back of stabilizing nonwovens market. In our view a 5% EBIT margin is a reasonable assumption in a long-term valuation context. However, given the company’s recent challenges we are not yet ready to fully weight this long-term potential in our TP. We do note that the 5% margin assumption would justify a share price materially above EUR 3 per share. Suominen now trades at 6.1x EV/EBITDA ‘19e, a 20% discount to peer multiples.

Suominen - The results look promising

24.04.2019 | Earnings Flash

Suominen posted Q1 adj. EBIT, at EUR 3.0m (vs. our EUR 2.0m estimate), substantially above our expectations. The company’s gross profit (and margin) improved due to higher prices and stabilizing input costs. Volumes were lost, yet the results point to Suominen having achieved a turnaround in earnings.

  • Q1 revenue amounted to EUR 110m vs. our estimate of EUR 116m. Revenue grew by 3% y/y (EUR 3.2m in absolute terms). The EUR/USD exchange rate accounted for EUR +4.7m, quite in line with our EUR 4.3m positive expectation. This means organic growth was roughly EUR -1.5m. We expected clearly positive organic growth (around EUR 4m), estimating improved pricing would outweigh volume losses.
  • Gross profit totaled EUR 8.9m (8.1% margin) vs. our EUR 8.0m (7.0% margin) projection.
  • In other words, even though Suominen lost substantial volumes, price hikes and stabilizing input costs helped the company to achieve a major profitability improvement.
  • Adj. EBIT reached EUR 3.0m (2.7% margin) vs. our EUR 2.0m (1.8% margin) estimate.
  • Suominen retains its 2019 guidance for flat revenue and improving adj. EBIT.
  • The company also announced the appointment of Mr. Toni Tamminen as CFO (effective 30 Jul 2019).

Suominen - Results finally on the horizon?

16.04.2019 | Preview

Suominen reports Q1 results next week, on Wed, Apr 24. Q4 proved another miss in a long series, however there are tentative signs pointing to earnings having bottomed out. The company has hiked prices since last autumn (although volumes are likely to be lost as a result), and raw materials pricing pressure has become a less acute problem with all the major inputs registering double-digit price declines during the last six months.

Focus will be on the gross margin and volume dynamics

Gross margin continued to decline in Q4, hitting a low of 6.2%. We expect the Q1 gross margin at 7.0% (vs 7.4% a year ago). With the onset of nonwovens price hikes and recent declines in raw materials prices the gross margin is bound to increase, yet it is hard to say to what extent volumes might have been lost. We are forecasting 5% y/y volume decline for Q1. We expect Q1 revenue at EUR 116m (8% y/y increase) and adj. EBIT at EUR 2.0m, or 1.8% margin (vs EUR 1.5m and 1.5% a year ago). Our forecast could be topped on the gross margin level as input prices have been weaker than expected. However, we leave our operative estimates unchanged as the gross margin positives and volume negatives should cancel each other out on the absolute gross profit level.

First quarter with the new CEO behind the wheel

Mr. Petri Helsky (previously CEO of Metsä Tissue) has held the seat as Suominen’s President & CEO since Jan 7. Suominen guides flat revenue and improving adj. EBIT for 2019. We expect 2019 revenue to increase by 3% (mostly due to FX), and EBIT at EUR 12.5m (EUR 4.6m) as gross profit is set to improve.

Estimates remain largely intact, FX basically flat

We retain our HOLD rating and target price of EUR 2.40 per share ahead of the Q1 report. We stay cautious for now despite expected gross margin improvement as it is unclear how much volume might be lost. Peer group multiples have gained sharply in recent months, meaning there is solid upside potential should Suominen manage to turn around earnings trajectory in 2019.

Suominen - Waiting for earnings to turn

17.08.2018 | Company report

Suominen has faced clear challenges in recent years and there is way to go to reach the historical earnings level. Own efforts and Bethune’s improving outlook support the outlook for earnings gradually turning to the better. Valuation on 2019E multiples looks moderate, but evidence of earnings turning remains to be delivered. We retain “Hold” rating for Suominen’s shares.

Business has suffered in recent years

Capacity increases by competitors in certain product areas have had a clear negative impact on Suominen’s business in 2016, 2017 and H1’18. Particularly price/mix and profitability have been key issues. Suominen addresses these via its 3P program. Some early results were delivered in H1’18. Bethune’s increasing contribution should help in gradually turning price/mix to the better. We expect earnings in 2018E to remain modest, in line with guidance, but expect earnings to gradually improve in 2019-2020E, driven by both Bethune and Suominen ex-Bethune.

Bethune’s outlook seems to be finally improving

After a lengthy period of ramp-up troubles, Suominen’s new production line in Bethune finally reached positive gross profit towards the end of Q2’18. Management indicated production volumes in July 2018 were good, which improves outlook for a gradual turn finally taking place. We expect Bethune to have a more significant topline impact from H2’18 and its gross profit contribution to turn to positive in H2’18.

Waiting for earnings to turn - “Hold” reiterated

Suominen’s valuation looks unattractive with 2018E multiples, but on 2019E multiples valuation looks much more moderate: on our 2019E estimates Suominen trades 5.4x EV/EBITDA, 10.3x EV/EBIT and 13.1x P/E, which are close to Suominen’s historical multiples. While valuation does not look particularly challenging on 2019E estimates, evidence of earnings turning to better is needed to justify material upside. With 2019E multiples close to historical valuation we keep “Hold” rating intact with target price of EUR 3.4 (3.5). If Suominen was to move towards its financial targets, there would be clear upside to valuation.

Suominen company presentation 13082019

Suominen - Company presentation

13.08.2019
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Suominen company presentation 13082019

Video presentation

Company Facts

Guidance

Suominen expects 2020 comparable operating profit to improve significantly from 2019

Financial targets

2020-2025 strategic financial targets include revenue growth above market rate, above 12% EBITDA margin by 2025, and gearing in the 40-80% range

Share price (EUR)


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