Translation: Original published in Finnish on 03/26/2026 at 07:30 am EET

We believe that the rising price of oil-based raw materials will impact Suominen's earnings in the coming quarters and keep the earnings level weak. Given the already weak balance sheet and deteriorated estimates, we believe the company will raise equity-based financing this year. In this report, we added a hybrid loan to our estimates. With lower estimates, we cut our target price to EUR 1.1 (was. EUR 1.3), but due to the sharp decrease in the share price, we raise our recommendation to Reduce (was Sell).

We believe rising energy prices will impact earnings in the coming quarters

We estimate that the increase in the price of oil, gas, and their derivatives caused by the war in Iran will significantly increase Suominen's costs. Of the fibers that serve as Suominen's main raw material, 38% were oil-based last year, and their prices have risen by 20-30% during March. In addition, the company uses natural gas at its plants, although the impact of this is currently limited to Suominen's Italian plant (one of three European plants).

Suominen has mechanisms in its contracts, especially in its main market, the US, that automatically raise sales prices when raw material costs increase. Naturally, the company also implements price increases in its other contracts when the cost level rises significantly. However, we believe there is some delay in price increases, and, thus, the rise in raw material costs will negatively impact the company's earnings in Q2-Q3'26 before price increases take effect. Due to this, we have lowered our 2026 earnings estimates by around 3 MEUR. Our full-year adjusted EBITDA estimate is now 16 MEUR, which is still in line with the company's guidance. 

We added a hybrid loan to our estimates due to the weak balance sheet situation

With our updated estimates, Suominen's 12-month rolling adj. EBITDA will remain approximately at last year's level until Q3'26. We estimate the company's cash flow to be negative this year. This is explained by the one-off costs and investments of the efficiency program, as well as the working capital increase due to rising raw material prices. The company's net debt/adj. EBITDA was already over 6x at the end of 2025, and the company said it was negotiating covenants with its financiers. In our estimates, indebtedness will not improve this year through operational development. Therefore, we have added to our estimates that the company will issue a 25 MEUR hybrid loan this year (this is recognized as equity in accounting). We believe that with this support, the company will also be able to refinance the 50 MEUR bond maturing next year, as the hybrid loan would strengthen the company's cash position and balance sheet indicators. Interest expenses on the hybrid loan lower our EPS estimates. We see a share issue as an alternative to the hybrid loan.

Share prices in a clear earnings improvement, the expected return is weak

The share price is so high relative to earnings that it requires several years of strong earnings growth before the valuation is at a justified level. With the updated estimates, the company's EPS will not turn positive until 2029. Considering the limited competitive advantages, we do not believe that the company will be able to achieve a return on capital that is sustainably above the required return in the long term. The value of our DCF model, which assumes a clearly better long-term margin than the current one, is EUR 1.3.