Suominen: Multiples are still conservative

Suominen: Multiples are still conservative - Evli Research

No clear reason to expect softening wipes demand for now

In our opinion outlook is solid even after an exceptionally strong Q2, when revenues in Americas and Europe grew y/y by 19% and 16%. Fatigue and possibly growing indifference towards hygienic considerations could limit wipes growth at a certain near future point, however many reports suggest this unlikely to happen at least during the next few quarters. According to a New York Times article some consumers in the US prize canisters of Clorox disinfecting wipes as kinds of trophies since the item remains such a rare sight on store shelves. Many companies have formed partnerships with Clorox to reassure employees and customers that surfaces can be kept disinfected. Clorox saw wipes demand grow by 500% in a few months and inventory usually enough for 1-2 months gone in 1-2 weeks. Clorox was able to up production and plans to add more early next year. This is just one brand-specific example from the downstream part of the supply chain, but we believe it’s still relevant for upstream nonwovens suppliers. The US is also a key market for Suominen since the Americas BA contributes ca. 65% of revenue. Although European consumers may not be as keen wipers as their American counterparts, we believe the recent pandemic acceleration continues to lift volumes on both sides of the Atlantic.

There are no changes to inform estimate revisions

We view Suominen well-positioned to post double digit y/y growth rates during the next couple of quarters. With regards to H2’20 top line figures we see the uncertainty associated mostly with the scheduled maintenance breaks at several Suominen plants and to what extent exactly these will negatively affect production and delivery volumes. Raw materials prices have continued to develop flat and hence we still expect gross margin to decline from 16% in Q2 to 15% in Q3. There has also been basically no change to FX rates lately and so our EUR 114m revenue and EUR 9.8m EBIT estimates for Q3 remain intact.

We consider the conservative multiples attractive

Suominen continues to trade well below 6x EV/EBITDA on our estimates, compared to a historical average of 6.5x. We find this an attractive level and so retain our EUR 5.5 TP and BUY rating.

Suominen: Multiples are still conservative - Evli Research

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