Finncap's increased 465p target price is summarised as follows FYI:
"Full-year results ¡V dividend turbo boosted
Full-year results were slightly above expectations and point to being on track to exceed our previous FY 2018 forecasts slightly. Market conditions remain robust in its main US market, with significant growth seen in Europe. A revised dividend policy gives new clarity to cash returns, (backed by $19m of net cash), and triggers a strong uplift in ordinary dividend plus a supplementary dividend. The shares remain attractive on an earnings basis but also have premium yield attractions. Our raised 465p TP is based on a P/E of 17.0x in 2018 and 16.0x in 2019 and offers strong upside scope to the shares. Market conditions remain favourable and cash returns underwrite our positive stance.
Results were slightly better than the year-end update, with a strong December. Revenue increased by 8% to $85.6m, with EBITDA at $28.0m, an increase of 14%. Adjusted PBT was $26.2m up 19% and following a lower tax rate adjusted EPS at 33.3ȼ, was up 27%. A final dividend of 12.75ȼ was declared, making 15.5ȼ in total ¡V a 40% increase. A supplementary dividend was declared at 3.6ȼ ¡V tobe paid alongside the final. Net cash of $19.0m, was down $1.1m on the prior year with $19.8m of operating cash flow and $13.9m paid on dividends.
Four out of six regions saw growth. The US was up 2% with a strong H2 following a weaker H1, with a strong outlook. Europe was the star performer, seeing 54% growth, helped by strengthening economies. China was down 14%, but is responding to marketing measures instigated later in the year. LATAM was up 35%, offsetting a weaker Mid-East. New product introductions continue to boost sales growth. Ride on screeds were up 29%, with stronger 3D profilers and accessories & spares also strong. Remanufactured sales were down 5% and in part reflect the Chinese experience.
We slightly upgrade our 2018 forecasts, with a $0.7m increase in adjusted PBT to $27.7m, boosting EPS by 2.5% to 37.7ȼ. We introduce new 2019 forecasts based on modest sales growth of 4.4% and EBITDA margins of 32.1%, giving YoY EPS growth of 6%. Cash conversion remains strong, allowing a 39% upgrade to annual dividend in 2018 and significant further scope for supplemental dividends.
The shares have been strong performers over the past year, reflecting robust market conditions and the gain from US tax changes. We increase our price target from 450p to 465p pointing to a P/E of 17.0x in 2018 followed by 16.0x in 2019. Cash returns and a 5.4% yield are key features of the investment case. We therefore still see upside to the shares and remain positive on the group¡¦s prospects."
Record full-year revenue took Somero (SOM) within striking distance of its $90m (£65m) sales target. The concrete levelling specialists adjusted cash profit also reached a new high, rising 14 per cent to $28m. In somewhat of a hat-trick, operating cash flow simultaneously rose to an unprecedented $19.8m from $17m year on year. Topping off an excellent set of results, Somero has updated its dividend policy: management now targets a year-end net cash balance of $15m, whereby 50 per cent of any surplus cash will be distributed to investors for 2017, this meant a special dividend of 3.6¢ a share.
The proportion of non-US revenue rose to 32 per cent, reflecting an increasingly diversified top line. Europe was the star performer with eye-catching growth of 53 per cent to $12.2m. Management says the company's European equipment fleet is relatively old so technological upgrades could breed new opportunities.
China endured a 14 per cent decline in sales to $5.5m, largely driven by a sluggish first half. Somero still sees a strong opportunity to expand its market presence here, albeit over a longer timeframe. Middle Eastern sales also fell 28 per cent to $2.1m, although activity levels were maintained.
Analysts at finnCap forecast adjusted pre-tax profit of $27.7m and EPS of 37.7¢ for 2018, up from $26.2m and 36.5¢ in 2017.
Trading on an undemanding forward multiple of 14, the shares still represent good value particularly given managements confidence in US growth prospects. The new dividend policy is an added bonus. Buy."
It's a busy reporting day for me - 4 companies I hold shares in all reporting finals. The first 2 I looked at were both doing so well they were awarding special dividends (next 2 not so good) but for half an hour or so life was good.
Agree with all you say Gretel: very good results and all indicators suggest more of the same in the future.
Excellent results - well ahead of forecasts for sales, EBITDA, PBT and EPS.
PBT of $25.7m compares to just $24m forecast by Finncap.
And 0.31c EPS compares to forecast 27.4c. Upgrades coming for this year?
Plus there's a 3.6c special divi on top of the 15.5c normal divi.
Most importantly, current trading for both the USA and Europe is very strong indeed:
"Current Trading and Outlook
The high level of activity in North America during the latter part of 2017 has continued in 2018. We continue to see strong interest in our equipment and remain encouraged by the positive non-residential construction outlook in the US for 2018. The expected positive impact from US corporate tax reform is an additional factor reinforcing our confidence in North American growth prospects.
In Europe, the strong performance of 2017 is also expected to carry forward into 2018. Similar to conditions we see in the North American market, European interest in our equipment remains strong driven by demand for replacement equipment, technology upgrades, and new products. Our confidence in the growth prospects in Europe is supported by improved economic conditions across the territory."
Results will be on 14th March. With a booming US economy, huge potential in China and India and this outlook from January, there's every reason to believe SOM's upswing will continue for some time yet:
Following record results in 2017, the Board is confident in the Company's ability to deliver another year of profitable growth in 2018 as the underlying market conditions in our core markets remain positive and as the Board continues to see significant growth opportunities in our other territories. The Board's confidence is further supported by recently enacted pro-growth US corporate tax law changes which are expected to stimulate increased economic activity in the Company's largest market."
The recent trading update whilst very upbeat says sales revenue only up by around 5 percent you.
PE ratio is at it's highest since I bought in in early 2016.
I,m very happy to hold here, but am not surprised we are not heading towards the broker,s latest target of 480p just yet. Not too long to wait however!
Yes I don't really understand the recent weakness - the weakening $ may be partly to blame, but we are now where we were before the trading statement; which was very positive, and subsequent press comment has been too.
Paul Scott is a SOM holder - he's commented as follows this morning on Stockopedia:
"Positive update from Somero Enterprises Inc (LON:SOM) today (disclosure: I have a long position)- a very nice, niche business, which makes the laser-guided machines used to lay perfectly flat concrete floors (very important for warehouses). Being based in USA, it should hopefully benefit from tax reductions.
EDIT: I've just seen a broker note, upgrading 2017 EPS forecast by 7.7% to 29.5c, and 2018 by 7.0% to 36.8c. That translates into 21.8p and 27.2p, giving a 2017 PER (based on share price now of 360p) of 16.5 times, and a 2018 PER of 13.2.
Conclusion - it still looks cheap, based on 2018 forecasts. Also note that it has a strong balance sheet, and reports net cash today of $18.5m. Positive outlook comments too. Very nice."
I've had similar issues before. Even though I had filled this in before and the fact I already owned shares proved I must have.
Excuse I was eventually given by Selftrade was that the form needs renewing every 3 years. But they don't warn you that its run out if that's the case. First you known is when you come to sell/buy.
I've not had this problem with other brokers, so treat what Selftrade say with a great deal of sceptism. Anyway that's the reason they gave me.
You should check your last dividend because without this form being up to date then you would have paid 30% tax on it to US authorities instead of 15%.
On the strength of this update I decided to top up my holding, expecting the share price to rise quickly in the early minutes of trading. When I checked in it looked like I'd be paying about 356. I had to complete a W 8BEN before I could trade. This took about 20 minutes & I ended up paying 364.
I did not have to fill in a W 8BEN when I originally bought & I thought the form was for where the company was listed, not where it was registered.
Not too bothered as this is a long term growth story.
"Following record results in 2017, the Board is confident in the Company's ability to deliver another year of profitable growth in 2018 as the underlying market conditions in our core markets remain positive and as the Board continues to see significant growth opportunities in our other territories. The Board's confidence is further supported by recently enacted pro-growth US corporate tax law changes which are expected to stimulate increased economic activity in the Company's largest market."
Finncap's note yesterday supporting their increased 420p target succinctly summarises the US tax reforms I've been banging on about as follows:
"Tax changes. The US tax reforms proposed by the US President passed into
law just before Christmas. The main change is to reduce the headline
corporation tax rate from 35% to 21%, effective 1 January 2018. Profits made
overseas are also allowed to be repatriated back to the US tax free, and a
partial amnesty on historic profits at reduced rates. A readjustment of the
companys deferred tax assets is expected, which will be a one-off non cash
item. In addition, the reforms allow a more generous, immediate expensing of
capital equipment purchases, which is expected to result in customers
accelerating their purchasing of equipment in the short term, while also
potentially stimulating longer-term investment plans by manufacturers."
They've increased EPS for this year by almost 20% to 34.4c, and the forecast cash pile rises to $26.8m - potentially bringing another special dividend.
I just think the share price have been marking time for most of the year year after the meteoric rate of increase in the share price during 2016 and early 2017. I've been happy just to see the cash returns from the divis during the year . Journalists may have some effect having noticed a dip in the share price but they are only writing about the strong fundamentals of the business and its low valuation which I hope will continue to out when the forthcoming trading statement and results are reported.
There should be a one off boost to earnings once the new taxes in the USA are implemented. Enabling the production of smooth floors, with lower labour costs seems a niche business with more growth potential.
I'm expecting to hold until there are signs of new entrants, some disruptive technology emerges or the Company is bought out.
It shows what a couple of journalists can do for a share price, specially a low profile share.
Apart from the US Tax changes, which were largely expected to go through in one form or another for some time this is the same company with no new news that it was in late November; but it's now worth 20% more.
Somero Enterprises is a £160m business that designs and manufactures laser-guided machines involved in laying concrete.
Simon Moon and Fraser Mackersie, managers of the £660m Unicorn UK Income fund, said: Despite its modest size, Somero is the clear global market leader in this specialist niche, with a strong presence in North America and growth in developing countries.
The shares are not expensive, trading on 15 times earnings for 2017, with a dividend yield of 3pc and cash available.
They said the growth in Someros business was organic as opposed to derived from acquisitions so it didn't require major expenditure, enabling the company to pay special dividends when it had built up excess cash.
With significant US earnings, American tax reforms could also provide a meaningful boost to future earnings Somero paid an effective corporate tax rate of 30pc in 2016, they added."
I note that the IC article doesn't even mention that SOM will benefit heavily from the new tax cuts in the USA - another reason for buying.
And regarding those tax cuts, I also note that the new legislation provides for capital expenditure to now be written off for tax purposes in the year it's incurred, which it can't be at present. SOM should therefore benefit from this as well as the more straightforward tax cuts.
Hi jim - many thanks. Worth adding the concluding paragraph too (which someone sent me)!
An expansion to its Fort Myers headquarters in Florida, accommodating future growth, will cost $1.3m, with most expenditure occurring in the first three months of 2018. But, while the shares are trading on a multiple of just 13 times forecast 2018 earnings, we think a re-rating is probable. Buy."
High-tech concrete-levelling is not a business description that rolls off the tongue. But that shouldnt detract from its commercial potential. Indeed, Somero Enterprises (SOM), which provides equipment, training and customer support for this process, reported pre-tax profits of $12m (£9m) for the six months to 30 June 2017, up from $10.4m a year earlier. And the group raised its dividend by 10 per cent to 2.75¢ while declaring a further special payment of 13.3¢. Despite these encouraging signs of progress, Someros shares are attractively rated.
Somero Enterprises Inc
3.28% Price (GBP)
Someros undemanding valuation has a lot to do with a trading update in June that highlighted flat performance in North America due to poor weather and political uncertainty, and slow trading in China. The news prompted a share price fall, and we downgraded to sell. But the latest results and the value now on offer suggests its a good time to revisit the investment case. Indeed, even when faced with regional challenges, overall revenue rose from $39.7m to $42.4m in the six months to the end of June. Management also attributed higher first-half profits to cost management, price increases and better productivity.
There are signs trading is now set to pick up. North American first-half sales were down 5 per cent year on year at $28.4m, but heavy rains subsided towards the end of the period. This resulted in the highest levels of trading seen all year at the end of June and positive indicators of a solid second half. North America constitutes around two-thirds of Someros overall top line.
The same story played out in China first-half sales fell from $3.8m to $2.7m, but the best trading of the year was seen at the end of June. Management expects to see further improvements and is re-looking at China via a strategic review. China is estimated to use half of the worlds total concrete, representing a serious opportunity for Somero even if long-running fears of slowing economic activity play out.
Europe and Latin America were the groups star performers, albeit starting at a lower base than North America. European sales rose 108 per cent to $5.4m, while Latin Americas leaped 750 per cent to £1.7m. The rest-of-the-world regions, including Australia, Southeast Asia, Korea, India, Scandinavia and Russia, also lifted revenues 79 per cent to $3.4m. New product sales contributed $1.4m, including the S-158C model in China, the SP-16 Concrete Line Pulling and Placing System, and the next generation 3-D Profiler System.
Meanwhile, first-half cash flows from operations rose 62 per cent to $9.4m, leaving the group with $18.3m net cash at the end of June. The healthy balance sheet underpinned the decision to pay the special dividend, which is expected to take the full-year yield to nearly 7 per cent. Further special payouts could be on the cards, adding to Someros appeal.
Thanks for all the useful input.
On a parallel subject, I am surprised that there was little information following the recent hurricane even though the disruption (rather than the destruction) in the Fort Myers area was substantial. For example, on the website it talked about the non-availability of power for some considerable time. I would have liked an update on the more recent situation and the impact on the company's US business. We never had it, or if we did I must have missed it.
Hi Gretel. Thanks for keeping us posted on the issue of US tax cuts (just implemented.
My back of the envelope calculation suggest Somero will benefit from an annualised tax reduction in the region of $3-$3.5 million over the period of a year (based on 2016 pretax profits. ) Headline corporate tax rate in USA cut from 40% to 20%. Corporations generally pay a lower level that headline. Somero accrued for tax around 33% of pre tax profits in 2015 and 2016. One would expect a drop in the tax rate to somewhere in the region of 16-20%. So maybe an increase in post tax earnings of 15 pus %.
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