Somero Enterprise Share Discussion Threads

[pireric] 08/9/2018 13:24

Hopefully this is starting to get big enough to get onto the radars of other research brokers like Berenberg

[paulypilot] 07/9/2018 18:51

I interviewed the Directors of Somero today, over the phone.

Questions were crowd-sourced from my blog readers.

I hope you find this interesting. This is a completely independent interview - I didn't charge anything, and don't currently hold Somero shares.

Here is the audio:

[mfhmfh] 05/9/2018 19:10

Buy rating reiterated in today's IC.

[cfro] 05/9/2018 17:34

Thanks rivaldo,

A great day here today and one of the best for a fair while.

[rivaldo] 05/9/2018 13:41

Worth noting from Finncap that with forecast $24m net cash at this year end, they foresee another supplemental dividend in the range of 7c-9c per share.

That would equate to a total dividend for the year of 31c-33c, i.e around 25p per share.

[grabster] 05/9/2018 10:29

Love the longterm chart. Market cap still only £225m - way to go methinks. Congrats to all who bought when thread started and now quadrupled.

Surprised one of the construction equipment majors hasn't bid (yet). Would make a great little bolt-on for John Deere, or Caterpillar or one of the far east biggies.

As others have pointed out, there are several rivals in the screeding field, and a few in the concrete levelling field - but Somero seem to be more versatile in doing both and never ceasing to innovate.

[glawsiain] 05/9/2018 09:46

Paul scott has just written on SOM at

Summary:

this is one of my favourite companies, and management teams. It was a pleasure to interview them in Jan 2016, here (audio & transcript). The share price has tripled since then.

So I'm really looking forward to interviewing them again this Friday.

The valuation is far from demanding - a PER of only 13, for a cash-rich company, paying a 5% dividend yield, and reporting a good outlook, looks great value to me.

Somero certainly looks a great value/GARP share. Although we do have to consider the cyclicality. Sales and profits tend to be very cyclical. Its biggest market (the USA) is doing well, after the stimulus from Trump's tax cuts. That should benefit Somero in a lower tax charge, although I note that H1 2018 sees a 22.4% tax charge, up from 20.2% last H1.

Overall then, all looks pretty good to me.

[pireric] 05/9/2018 09:31

Excellent start to the year. Refer back to my comps table - on pure p/e I can get towards Finncap's price target, adjusting for cash clearly above it. On cash flow, blows Finncap's right out of the water, and it's cash flow that determines the value of a business...

[lammylover] 05/9/2018 08:59

Excellent H1 results, particularly like the 13% increase in pre-tax profit and also the 13% increase in net cash to $20.7m. I had considered top slicing a few shares today, but will keep them. Somero still have further growth expected in H2 and the 465p broker target looks easily achievable with a bit of media coverage by Shares magazine and the Investors Chronicle who I'm sure will rate this a BUY! Well done Board of Directors. Rich

[interceptor2] 05/9/2018 08:52

A solid set of results again with impressive cash generation and nice increase in the dividend, seem good value on a PER of about 12.5.

USA and Europe have been the main drivers of growth which has continued into the second half, I thought that the statement was particularly bullish for the outlook for the North America which still represents 68% of revenue.

"In North America during the first half of 2018, non-residential construction activity remained strong and our customers reported project backlogs that extend well into 2019, underpinning our growth prospects. In H1 2018, the North American market reported sales of US$ 30.5m, a 7% increase over H1 2017 as sales of Boomed screeds, Ride-on screeds and Other revenues all increased compared to the prior year. With robust market conditions and customer confidence in the outlook for non-residential construction in the US, we expect solid H2 2018 trading in this key territory."

[xajorkith] 05/9/2018 08:40

Another strong set of results with significant momentum, excellent cashflow & positive medium term product development driving future growth.

“Overall, we see strong activity across our entire geographic footprint and strong interest across our product categories in H2 2018.”

Clearly underpriced imv & remains a LTBH based on the medium term growth prospects & sizeable dividend.

[cfro] 05/9/2018 08:09

"Significant momentum continues, underpinning another period of growth"


This opening line to todays statement says it all. Very happy with these results. The 31% increase in cashflow and 100% increase in the divi was particularly encouraging.

[podgyted] 05/9/2018 07:59

FinnCap:-

" We are comfortable with
our existing forecasts and maintain our price target at 465p. We continue to see
positive market momentum and strong cash generation, with the development of
new products offering a significant opportunity to deliver share price upside over
the medium term."

[rivaldo] 05/9/2018 07:40

Encouraging interim results today, with all metrics up nicely. The dividend is up 100%! Partly due to a rebalancing....

Europe and North America, the two core markets, are thriving. China is flat, but the optimism about its potential remains. And it's interesting that SOM are "particularly pleased with the traction we are gaining in the India market".

New products are selling well, and the high-rise product development is progressing solidly.

In particular, the outlook statement sets things up nicely for H2:

"Somero delivered a strong performance in H1 2018 with balanced growth across our geographic footprint and product categories. Our business continues to be operationally efficient with 6% sales growth translating into double digit increases in earnings and cash flow. Most importantly, I am pleased with the progress we are making on new product development which is expected to drive the long-term growth of the business. Based on our H1 2018 performance, the momentum of the business carrying over into H2, and healthy market conditions across our footprint, the Board expects Somero to deliver another successful year of growth in line with current market expectations."

[rivaldo] 31/8/2018 14:09

Tipped here earlier this week:



"Follow the money

Manufacturer of laser-guided construction equipment Somero Enterprises (LSE: SOM) is an excellent example of the rule that boring businesses tend to make the best investments.

Over the past six years, its net profit has expanded at a rate of around 80% per annum! Thanks to this growth, shares in the company have more than quadrupled in value since mid-2013.

City analysts believe the group’s growth will slow over the next two years. Analysts have pencilled in an earnings per share (EPS) increase of just 17% for 2018 and 5% for 2019, a significant drop on the 80% per annum recorded between 2012 and 2017. Still, what Somero lacks in earnings growth, it more than makes up for in dividend potential.

The shares currently yield 3.9%, but this is expected to hit 5.5% by 2019. According to analysts, Somero’s per share payout will jump 42% by 2019. With $20m of net cash on the balance sheet, and dividend cover of 2 times (for 2017) it can easily afford this growth. And I believe it could be just the start of the company’s life as an income champion because its operating profit margin of 30% gives the firm plenty of free cash flow to play with every year. Even as growth slows, management can afford to hand more cash to shareholders.

As well as its dividend profile, shares in Somero currently trade at an attractive forward P/E of 12.5. So if you’re looking for a small-cap dividend growth play, in my opinion, this company is certainly worth a deeper look."

[macmuck] 22/8/2018 13:58

Thanks Pireric,

Your totally right re the importance of totally flat floors given the evolution/growth in warehouses and the move toward total automation.So the company is in exactly the right place to benefit from these changes, wherever in the world that comes to being.
When I invested a few years ago, I spoke to them and it was clear even then that this was a company people who worked for, were excited about...and enjoyed working for.
This and that fact that they were so geographically spread, encouraged me to take a small holding and leave it. Though I did top up around £3.30 earlier this year. I have found it a wonderful stress free experience, which suits me just fine!

[cfro] 19/8/2018 17:42

Some nice fundamental calculations pireric, thanks.

I came to similar conclusions a while ago and hence have been a shareholders here for some time now.

I agree that the high-rise screeding markets look like a real opportunity and also agree re takeover potential.

[pireric] 18/8/2018 10:11

And just to prove it ;0), here's some tedious work I did last night looking at Somero versus the other main UK listed industrial component and machinery plays. I'd be surprised if there isn't a company somewhere in the world at least mildly interested in Somero for purchasing purposes at the current valuation

[pireric] 16/8/2018 20:37

I've bought in here today :0), am sure some others have as well. It's pretty damn cheap and after 2 weeks of slow research I've overcome the concerns I've previously had.

"With EBIT margins of 25-30%, Somero is basically a high tech industrial equipment manufacturer. It has long term theme exposure to warehouse and factory automation (flat floors are essential). It also has a very good track record, and is the dominant market leader in laser screeding, with I estimate 85%+ market share and has grown substantially since recovering from the financial crisis. If an investor were to look at similar other high-tech, high margin industrial equipment companies to Somero, they'd typically find companies trading at high teens multiples, with around 1 turn of debt leverage on the balance sheet. Remarkably, even though Somero has substantially re-rated over the last few years, it's trading on clearly below market multiples. 11.8x 2019 earnings (11.1x excluding my forecast for 2019 cash position). In addition, I calculate a near 7.5% free cash flow yield (trailing, neutral working capital) and a dividend yield of 4% (at a 30% taxed rate given it's a US company). Quite frankly, it's extremely cheap. Add on top, Somero are in the 5th and final year of their 2014 plan, which they have now successfully delivered on. I suspect they may release a new one later this year. If true, I think it could be markedly ahead of analyst expectations (contingent on a good market environment) with analyst estimates for only 4% EBIT and revenue growth in 2019, a lowball IMO. However, I reckon this year they'll grow revenues 3% in the first half of the year, and 7% in the second half. Market opportunities? They're actively designing a new product for screeding in structural high rise buildings, an entirely new market opportunity. China is a market they've been after for a long time, but it's a bit of a stale story with Chinese manufacturers seemingly preferring low cost to quality and so not being massively bothered by requiring perfectly flat floors during construction (i.e. the need for laser screeding). My wildcard is that this must surely be a takeover target at current levels especially with management change in place as a key man retires over the next few years. The main risk is by far and large a serious macro downturn, but I'd fine with that as my personal opinion is that there won't be one on the horizon. No real Brexit risk here! An undemanding 15x 2019 PE = 474p = 27% upside"

[ali47fish] 16/8/2018 12:37

this has come down 5pc as i write - anyone knows why and is this a good entry to add anyone with insight

[basem1] 01/8/2018 12:14

Are they not predicting 3% GDP growth in the States for the next 2 years at least ?

[rhomboid] 01/8/2018 11:20

I believe in the context we were talking it was 90% excluding China..I’ve no figures re trend but obviously the sector itself is growing as laser flat floor requirements are increasing so I guess there’s room for both to prosper. I'll probe further next time I’m in contact..

[solooiler] 01/8/2018 09:38

Is that 90% market share globally? After a spell of less innovation, Ligchine have launched a couple of products recently, including one last year. It looks to have some advantages (zero turn, they claim patent pending). I've checked and pricing is substantially lower, which is interesting because this is outside China (where knockoffs exist). Ligchine and Somero seem to be the two big players. Guess this is typical economics of supernormal profits and competition. Any idea how the market share has trended Rhomboid?

[rhomboid] 01/8/2018 09:31

I asked mgt about competing products they said that is where their refurbished machines come into play..this then let’s the customer into the Somero ‘family’

They said the key thing they offer is 24/7 global service support..so if a problem occurs mid pour they can resolve it before huge costs are incurred..nobody else offers this & it’s mission critical kit so that gives a big moat..hence why they have over 90% mkt share