Suominen: Exceptional performance - Evli Research
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.