Translation: Original published in Finnish on 10/15/2025 at 07:45 pm EEST

As expected, Suominen issued a profit warning and stated that its full-year adjusted EBITDA would be lower than in the comparison period. The warning and the preliminary Q3 earnings information were largely in line with our expectations. We lowered our estimates slightly. We raise our recommendation to Reduce (was Sell) and lower the target price to EUR 1.6 (was EUR 1.7) with slightly lower estimates.

Q3 was weak and the company downgraded its guidance as expected

Yesterday, Suominen issued preliminary information on its Q3 results. Q3 revenue was approximately 100 MEUR, or over 10% below the comparison period, when our estimate was 106 MEUR. Adjusted EBITDA was 3.4 MEUR, which was slightly below our 3.7 MEUR estimate. However, the consensus forecast, at least after the Q2 report, was clearly higher at 4.8 MEUR. The Q3 result is practically at the same level as the previous quarter and the comparison period. At the same time, the company downgraded its guidance and now expects adjusted EBITDA to fall for the full year, while it previously expected it to improve from the 17.0 MEUR of the comparison period. We had been waiting for a profit warning, and our previous estimate was already below the comparison period. We lowered our  full-year estimate slightly, and it is now 15 MEUR. We also lowered our estimates for 2026-27 a bit.

As the reason for the warning, Suominen states the prolonged impact of supply chain disruptions caused by the US tariff situation, which negatively affects volumes. This was also in line with our expectations. Further, the company states that the quarter's business was disrupted by equipment failure at one factory and water damage that destroyed inventories. However, the company did not disclose the magnitude of these financial impacts. Regarding the equipment failure, we note that the company also had operational challenges in production last year and has indicated that its production network requires investments. Thus, we believe the production challenges are not merely random factors but, at least partly, due to historical underinvestment, which takes money to rectify.

The poor result accentuates balance-sheet concerns

Due to the weak earnings, negative working capital changes, and ongoing investments, Suominen's net debt/adj. EBITDA was over 5x at the end of Q2'25, which we already find worryingly high. Based on the new guidance, earnings will not materially improve in H2, so the tight balance sheet situation is likely to continue. Thus, cash flow development will be of interest in the Q3 report. On the other hand, the company renewed its bank loan in the summer of 2025, extending its maturity to 2028. In addition, Suominen has a bond maturing in 2027. This means that refinancing will not be necessary for a year, which slightly eases the financing situation. Bond refinancing will, in any case, occur at a significantly higher interest rate than the current loan, and we believe the balance sheet may also require equity financing.

The share price reflects a clear earnings improvement, but 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 only years from now, 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 1.6, in line with our target price. We believe that Charles Heaulme, who took over as CEO on August 11, will launch further measures to improve profitability. Our estimates already anticipate a doubling of adjusted EBITDA by 2028, which we believe requires new measures, with earnings stalling at roughly the same levels this year for the fourth consecutive year.