Koskisen Q2'24 preview: Against tough comparison figures for the last time so far

Translation: Original comment published in Finnish on 8/14/2024 at 7:13 am EEST.

Koskisen will publish its Q2 result on Friday. In Q2, Koskisen is facing tough comparison figures for the last time so far, which we estimate the company has largely missed in a more demanding operating environment. Koskisen is expected to repeat its guidance in the Q2 report. On the demand side, the recent news flow and Q2 reports from peers do not point to a significant and sustained pick-up, as the construction industry is still going through a tough time. On the cost side, the high price of logs poses a challenge also for Koskisen. We will not change our view on Koskisen before the Q2 report, as we believe the impending but lingering cyclical turnaround (in construction) and the risks are well balanced in the share price.

We expect small growth driven by Sawn Timber Industry

We forecast Koskisen's revenue to increase by 2% to 75 MEUR in Q2. Our estimate is slightly below consensus. In the Sawn Timber Industry, Koskisen's new saw line in Järvelä means that the company has significantly more capacity than in the comparison period, and due to the replenishment of inventories, demand in Q2 is likely to have been slightly better than in the weak comparison period. In addition, deliveries were postponed from Q1 to Q2 due to political strikes in Finland and sawn timber prices have also increased slightly. We expect the Sawn Timber Industry to show clear year-on-year growth. In the Panel Industry, Koskisen is facing very tough comparison figures as last year's shipments were heavily focused on Q2 (and the summer shutdowns on Q3). According to our estimates, the price level in the Panel Industry has not changed significantly. As a result, we expect sales in the Panel Industry to have declined significantly year-on-year on a volume-driven basis.

Drop in earnings comes from Panel Industry, Sawn Timber Industry expected to improve

We forecast that Koskisen’s adjusted EBITDA decreased by about 30% in Q2 to 9.7 MEUR, which is slightly above consensus. This corresponds to an adjusted EBITDA margin of close to 13% for a seasonally good quarter. We expect the Panel Industry's result to drop significantly due to clearly lower volumes year-on-year and higher birch log prices, but still to reach a fairly good level (Q2'24e: adj. EBITDA 19%) thanks to high price levels. In the Sawn Timber Industry, we expect volume growth to have driven the unit's result above the weak comparison figure, although the commissioning of the new saw line in Järvelä has progressed slightly slower than the company's targets. However, according to our estimates, the market situation has not allowed for good profitability in the Sawn Timber industry (Q2'24e: adj. EBITDA-% 8%). Taking into account the small loss of the Other unit, increased depreciation due to the commissioning of the new saw line as well as low finance costs and taxes, we expect Koskisen's EPS to have decreased at a lever compared to the operating result and to have been EUR 0.22 in Q2. Our forecast is one cent above consensus.

We expect Koskisen to repeat its guidance for the current year

Koskisen has issued a guidance for 2024 according to which revenue will grow from last year (2023: 271 MEUR revenue) and the adjusted EBITDA margin will be 8-12%. We expect the company to reiterate its guidance in the Q2 report. We expect Koskisen's revenue to grow by 8% this year and the adjusted EBITDA margin to be in the middle of the guidance range at 10%. Consensus forecasts are roughly at the same level.

Based on the news flow at the beginning of the year and Q2 reports from peers, expectations of a recovery in construction have been postponed until next year. In the Panel Industry, measures to prevent circumvention of EU sanctions, significant supply constraints due to the war, and moderate demand from the logistics sector suggest that the market situation will continue to recover slightly. On the other hand, log prices, which continued to rise in the spring and show only slight signs of easing, have increasingly passed through to the costs of both units in H2. Thus, in our view, the overall picture of the market situation has not changed materially over the summer, at least from a performance point of view. As a result, we leave our forecast unchanged ahead of the Q2 report.