Suominen Q2'25: Tariffs indirectly hurt demand

Translation: Original published in Finnish on 8/7/2025 at 9:03 pm EEST.

Suominen's Q2 figures were weak, as the indirect impact of tariffs hit demand in the US. Although the company reiterated its guidance for improved full-year results, we lowered our estimate below that guidance. We believe the company's situation remains challenging and the valuation of the share is high. We reiterate our Sell recommendation and lower our target price to EUR 1.7 (previously EUR 1.8) due to reduced estimates. 

Q2 figures were weak

Suominen reported a 16% decline in Q2 revenue, a significant drop considering the industry's generally stable nature. This also came as a complete surprise in relation to expectations. The decline is mainly due to the company's largest market, the US, where customers purchased more goods from China prior to the tariff increase. This weakened demand for Suominen's products. The decline in revenue was therefore largely due to decreased volumes. 

With significantly weaker revenue, the company's results once again fell short of both analysts' estimates and the company's own expectations. Adj. EBITDA was only 3.2 MEUR (Q2'24: 4.9 MEUR, Inderes: 4.1 MEUR). 

Clear risk of a profit warning in the guidance

Suominen reiterated its full-year guidance for a year-on-year improvement in adjusted EBITDA (17.0 MEUR). However, the company is 2 MEUR behind the comparison period for H1, so meeting the guidance would require better performance in H2 than in the comparison period. This is supported by the ongoing 10 MEUR savings program, the effects of which will begin to be seen in H2. Similarly, the comparison figures for H2 are slightly easier than those for H1. Conversely, the weak volume that weighed on Q2 may persist into Q3, weakening the result. In our estimates, H2's adjusted EBITDA will end up at a similar level to the comparison period, and the full-year result will be around 15 MEUR, as it was in 2022-23. We therefore expect the company to have to lower its guidance at some point during the year.

Weak balance sheet, but financing renewed in July

Due to the weak result, negative changes in working capital, and ongoing investments, Suominen's free cash flow was clearly negative in H1 (over -20 MEUR). The company's net debt/adj. EBITDA was over 5x at the end of Q2'25, which, in our view, is already worryingly high, especially as earnings development has also been negative in recent quarters. We estimate that this is close to the covenant levels of the loans. On the other hand, the company renewed its bank loan a month ago, extending its maturity to 2028. In addition, Suominen has a bond maturing in 2027. This means that refinancing will not be necessary for at least a year, which will ease the financing situation somewhat.

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 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 1.7, in line with our target price. We believe that Charles Heaulme, who will take over as CEO on August 11, will launch further measures to improve profitability. Our estimates already anticipate a doubling of adj. EBITDA by 2028, which we believe will require new measures, as the result remains at the same level for the fourth consecutive year this year.