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 %.
I note that AHT's results this week were excellent - particularly from their Sunbelt operation, which is most relevant to SOM. There was good business resulting from clean-up operations post-hurricanes etc, but hopefully this is still a good overall pointer for SOM.
Trump's tax cuts have passed the Senate and are almost certain to be enacted quickly now, cutting corporate taxes from 35% to 20%.
SOM paid $7m tax last year at an effective 33% tax rate on $21.3m net profit. Historically and simplistically, at 20% tax SOM would save around $3m of tax - and of course that saving will grow as profits increase going forward.
Quite a benefit to SOM, representing around 3.5p EPS per share on 56m shares in issue - or say an additional 40p-50p on the share price:
I note that sector comparator Ashtead has been rising nicely in anticipation of the promised tax cuts in the USA which could lift earnings by 15% according to this - SOM would benefit just as much if not more:
"The FTSE also got a lift from equipment rental firm Ashtead Group, which rose 2.2 per cent, or 43p, to 1977p as analysts talked up its prospects in the US if President Trump fulfils his promise to cut corporate taxes.
Analysts at Stifel, Investec and Citi Group this week all published buy ratings on the firm, estimating US tax changes could boost earnings by more than 15 per cent."
I note that there's been progress in Trump's tax reforms, which would lower the top corporate tax rate from 35% to 20%. The bill is hoped to be passed by the end of November. This would dramatically cut SOM's tax rate and obviously greatly increase post-tax profits and EPS at a stroke.
SOM have released a new product which they're making quite a fuss about:
"Press Release: Somero® S-22EZ Laser Screed® Machine Now Available
Posted October 24, 2017
New features designed to increase profitability and boost productivity
Fort Myers, FL October 24, 2017 Somero® Enterprises, Inc., a leading manufacturer of technologically advanced concrete placing equipment and associated machinery, is pleased to announce the launch of its new S-22EZ Laser Screed® machine. The most technologically advanced model available on the market today, the S-22EZ includes all of the same cutting-edge features and benefits as the Somero S-22E model while incorporating a variety of new enhancements inspired by customer and operator feedback specifically designed to improve floor quality, increase profitability and boost productivity.
The major advancement on the S-22EZ is the incorporation of a new EZ Clean Head. The EZ Clean Head includes a rolled profile on the auger support beam and pivots 90 degrees to make cleaning faster and easier than ever before. Additional enhancements on the S-22EZ include a uniform body profile, increased storage with LED lighting, LED work lights, illuminating fuse panel and oil sprayer mount. The S-22EZ also comes equipped with a hose reel when you purchase the optional pressure washer, and head transport stands are now standard.
Along with these advancements, the S-22EZ features 360° machine rotation, a 20 ft. (6 m) telescopic boom, customized OASIS laser control system and Quick Grade Set. Integrated diagnostics and full-time, automatic valve calibration make operating the S-22EZ simple and keep the machine operating at optimum levels. The optional Roller Plow enhances performance when placing challenging mixes such as those with integrated fibers, large aggregate or low slump.
What further differentiates the S-22EZ is the optional Somero Floor Levelness System®, which is the first technology of its kind designed to monitor Laser Screed machine performance and alert the operator of any issues in real time. Several other machine options are available to meet customer needs, including head size, rotating screed head and extra storage."
Hadn't realized you kept such a close watch on the detailed warehouse ifrastr5ucture situation in the US especially the SE and W. Any special knowledge leads you to say this which will affect Somero as distinct form say Ashstead?
Looks like a bounce here is gaining momentum. The awful recent post-hurricane destruction and now fires in California (2,000 structures destroyed to date) have left a lot of infrastructure, warehouses etc in need of rebuilding.
"Caterpillars (NYSE:CAT) stock touched a new all-time high Monday on the heels of a bullish report that forecasted strong demand for construction equipment.
Analysts at UBS upgraded Caterpillar to buy from neutral, citing a positive earnings outlook. UBS also hiked its price target to $140 from $116. The investment bank noted that private non-residential construction activity is on track to strengthen in the fourth quarter, followed by continued growth in 2018....
...The Peoria, Illinois-based company said it benefited from mining- and energy-related sales in North America, as well as Chinese demand for construction equipment."
IIncidentally, in my search for information on their website on Hurricane Irma effects, I noticed that they have introduced an Hispanic versuon of the website as they seek to drive further into Latin America. PS From the number of Spanish speakers in the US, officaor illegal, it will probably be useful for their business there too!
I still think that they have sunk a bit too far and maybe that this is a buying opportunity or will be soon if there are any more pessimists out there about the Irma effects on this year's profits.
I've copied this from Stockopaedia (a web service I use)
"I had an email passed on to me by an investor friend from John Yuncza, CFO at Somero. John was happy for it to be circulated as Somero has already updated its broker Finn Cap.
"I can confirm all Somero employees and the families are safe, and there was no damage to the Somero headquarters. This storm will not impact our business as we are managing the business remotely and through our Houghton, Michigan infrastructure. The main issue were dealing with is the lack of power in the Fort Myers area and inconsistent cell service which has delayed our ability to officially re-open the headquarters building. To put it in perspective, 65% of Florida is currently without power, so this is an issue that will take time to get fully back to normal. Thankfully, no meaningful incremental costs are expected as a result of this historic storm."
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