Translation: Original published in Finnish on 3/5/2025 at 6:50 pm EET.

Suominen's fourth quarter and the year as a whole were weak. Despite the company's guidance for improved earnings this year, we expect earnings to remain negative. We have again lowered our forecasts and target price to EUR 1.9 (was EUR 2.0). We reiterate our Sell recommendation. 

Q4 results significantly below expectations and also down year-on-year

Suominen's revenue increased by 3% in Q4, mainly due to improved selling prices and product mix. The volumes dropped a little. Revenue was roughly in line with forecasts. Adjusted EBITDA was 4.2 MEUR, well below our expectations (6.6 MEUR) and also down year-on-year (5.5 MEUR), like in Q3. However, the company commented the operational issues that plagued Q3 did not have a material impact on Q4. According to the company, the decline in earnings was due to higher raw material costs. We believe the company should be able to pass this through to prices over time, but the repeatedly lower-than-expected and persistently weak profit levels also reflect chronic profitability challenges. For the full year, the company barely met its guidance of an improvement in adjusted EBITDA. However, the result was very poor for the third year in a row, with adjusted operating profit still negative in 2024.

Familiar guidance for 2025, but challenges remain

Suominen guides for an improvement in adjusted EBITDA for 2025. The guidance was the same for 2023 and 2024, with a clear improvement in expectations at the beginning of the year, but only a slight increase in the end. The company notes that the market is uncertain due to US tariffs and that Europe is receiving more imports from countries such as China. In the US, Suominen has local production, but it imports some of its raw materials from Canada, for example, which is affected by the tariffs that have just come into effect. Incorporating tariffs into sales prices is not an easy task, at least in the short term. Suominen will therefore face some headwinds in the coming year. As a result, we have significantly lowered our 2025-26 forecasts in percentage terms, and our net income forecast for this year has turned negative. At the same time, we cut the dividend forecast for this year to zero.

There seems to be no tools for a level correction in earnings anytime soon

In recent years, Suominen has sought to grow its earnings mainly by improving operational efficiency. As a major step, it closed the Mozzate plant in Italy in the spring of 2023, but other than that, we do not believe there have been any major individual measures. However, various problems and a very competitive market have practically eaten away at the benefits the company has managed to create. Although Suominen is able to launch a significant number of new products, the company's overall profitability is weak. As Suominen's production is almost entirely located in higher-cost countries, it is also exposed to competition from lower-cost countries, especially for older bulk products, which negatively affects its volumes and margins. We also understand that there is still oversupply in the industry, particularly in Europe. The company's performance deteriorated in H2'24 compared to the same period last year, and we do not see any potential for significant improvement this year.

The stock is pricing in a significant earnings improvement; we believe the expected return remains weak

The company's earnings multiples for the next few years are high and not in the range of our acceptable multiples before 2028, so we see many years of expected earnings growth going into the digestion of the multiples. Considering the limited competitive advantages, we do not believe that Suominen is able to achieve a return on capital that is sustainably above the required return in the long term. Assuming a much better margin in the longer term, our DCF model yields a value of EUR 1.9, in line with our target price.