Koskisen Q3 on Friday: Eyes on guidance, even though summer has probably been more subdued than H1

Translation: Original comment published in Finnish on 11/14/2023 at 7:56 pm EET

Koskisen will report its Q3 result on Friday. Koskinen's market situation has remained twofold by business area, but we expect the strong pricing situation in the Panel Industry to have pushed Koskisen to a relatively good profitability level in Q3. Koskisen can still repeat its 2023 guidance that reflects the prevailing high uncertainties, although our current forecasts expect a clear positive earnings revision from the company in terms of profitability. In addition to the result and outlook, we are especially interested in the management's comments on the progress of the ramp-up of the new Järvelä sawmill line that started at the beginning of Q3.

We expect a drop in revenue in Q3

Koskisen has not published comparison figures for Q3’22. We estimate that Koskisen’s Q3 revenue to be EUR 68 million. We expect that the Sawn Timber Industry's revenue will be down year-on-year at EUR 29 million. Our Q3 forecast is also lower than in Q1 and Q2, as the weak construction situation means that demand is subdued, the ramp-up of the new line may have reduced deliveries, and production was probably restricted during the holiday season. As a result, we expect volumes in the Sawn Timber Industry to remain low in Q2 and decrease year-on-year. We expect selling prices to fall only marginally from the low levels of H1, as current price levels are already in line with cash costs for the weakest players. We estimate that the Panel Industry's revenue is EUR 39 million, which we believe is in line with the level of the comparison period. In the Panel Industry, revenue is supported by the prices of birch plywood, which remained high due to the war-based supply disruption, but calming demand, the holiday season and availability constraints of birch logs have left volumes below last year.

Earnings responsibility still rests on the shoulders of the Panel Industry

We forecast that Koskisen’s adjusted EBITDA lands at EUR 9.4 million in Q3, corresponding to a relatively good adjusted EBITDA margin of 14%. In our forecast, the Panel Industry reaches an excellent EBITDA margin of 24% in Q3, as the support generated from high prices clearly exceeds the burdens of high birch log prices and the slight decrease in volumes. We estimate that measured by EBITDA-%, the Sawn Timber Industry has fallen to around zero, as margins have come under pressure from volumes, prices and costs (incl. the ramp-up of the new sawmill line). In other items, we expect Koskisen to have sold emission allowances moderately in Q3 like in Q2. Considering the increased depreciation, financing costs and taxes due to the introduction of the new sawmill line, we expect Koskisen to have accumulated an adjusted EPS of EUR 0.21 in Q3, which is probably well below the comparison period.

Driven by a strong H1, our estimates are above the profitability guidance range

Koskisen has provided guidance for the current year, estimating that in 2023 its revenue will not exceed the 2022 level and its adjusted EBITDA margin will be 12-14%. We estimate that revenue will decrease by 9% to EUR 296 million in 2023 and adjusted EBITDA to be around EUR 47 million. The performance level corresponds to an adjusted EBITDA margin of 16%. So thanks to the strong H1 (H1: adj. EBITDA-% 18%) we expect a positive earnings revision from Koskisen, even though the company’s operating environment is probably more demanding in H2 than in H1. However, the company can still repeat its guidance at this stage, as the end of the year will be difficult for both businesses, as construction slows down and demand lags in Europe. However, we expect the margins supported by the war-based supply disruption in the Panel Industry to push Koskisen clearly above its guidance for the whole year.