About the company:
Somero Enterprises, Inc [SOM] provides industry-leading concrete-levelling equipment, training, education and support to customers in over 90 countries. The Company’s cutting-edge technology allows its customers to install high-quality horizontal concrete floors faster, flatter and with fewer people. Somero equipment that incorporates laser-technology and wide-placement methods is used to place and screed the concrete slab in all building types and has been specified for use in a wide range of commercial construction projects for numerous global blue-chip companies.
The table below shows an overview of the past 5 years of trading.
| Date | Type | Turnover £(M) | Profit £(M) | Basic EPS | Ccy |
|---|---|---|---|---|---|
| 31 Dec 2017 | Full Year | 86 | 18 | 33.00 | USD |
| 31 Dec 2016 | Full Year | 79 | 14 | 25.00 | USD |
| 31 Dec 2015 | Full Year | 70 | 12 | 21.00 | USD |
| 31 Dec 2014 | Full Year | 59 | 15 | 26.00 | USD |
| 31 Dec 2013 | Full Year | 45 | 5 | 10.00 | USD |
One can extrapolate a decelerating growth rate with the 2017/2016 turnover being 9% compared to the 2014/2013 at 31%. Furthermore the past 6 month revenue growth posted in the interim results show revenue growth of 6%.
The EPS does better with the recent post being 20% and likewise the 2017/2016 EPS growth being 28%. However, if revenue fails to continue to grow, then the company will be limited.
If one assumes that the company stops growing at 100 million turnover with a 50c net income per share and remains at current multiples then the projected share price would be around 475 which is 15% above current levels on a conservative basis.
The current earnings multiple for SOM is 12.5X with a 4% dividend yield and a 2x dividend cover. The FTSE100 multiple is 14.25 and the FTSE250 is 16 for comparison, so SOM offers a 20% discount on this basis.
The shareholder breakdown is as follows:
| shareholder | Amount | % Holding |
| Hargreave Hale | 5,982,874 | 10.67 |
| Unicorn Asset Mgt | 4,572,661 | 8.13 |
| Close Asset Mgt | 4,017,962 | 7.14 |
| Lazard Freres Gestion | 2,298,000 | 4.08 |
| Artemis Investment Mgt | 2,206,123 | 3.92 |
| Old Mutual Global Investors | 2,171,000 | 3.86 |
| Polar Capital | 2,160,882 | 3.84 |
| Jupiter Asset Mgt | 2,150,000 | 3.82 |
| River & Mercantile Asset Mgt | 2,113,691 | 3.76 |
| Aberdeen Standard Investments | 2,043,314 | 3.63 |
| Janus Investment Mgt | 2,011,980 | 3.58 |
| City Financial | 1,867,594 | 3.32 |
| Artemis Investment Mgt | 1,776,443 | 3.16 |
| Hargreaves Lansdown Asset Mgt | 1,694,924 | 3.01 |
| JPMorgan Asset Mgt | 1,555,351 | 2.76 |
| total | 38,622,799 | 68.68 |
In the terms of AIM Rules published February 2007 and insofar as it is aware, at 27 June 2018, 10.85% of the company’s AIM securities were not in public hands.
The shares of SOM are not subject to UK stamp duty reserve tax which makes them 0.5% cheaper to buy compared to a FTSE 100 stock.
SOM equipment has been used in construction projects for a wide array of the world’s largest organizations including Walmart, Home Depot, B&Q, Carrefour, IKEA, Mercedes-Benz, Coca-Cola, FedEx, Tesla and Prologis.
Revenue breakdown:
A simple breakdown is:
| Region | % |
| North America | 68 |
| EMEA | 20 |
| ROW | 12 |
| Total | 100 |
EMEA: Europe, India, Middle East, Scandinavia, and Russia
ROW: China, Southeast Asia, Australia, Korea and Latin America
Questions:
- If the company has such big customers and such a good product, then why is the growth rate so slow especially given that the company is worldwide ?
- What are the market risks ?
update 28 Nov 2018
Based on the new share price (320p) and the updated market cap (178 mill).
If one assumes that the extrapolation using first & second derivatives produces £24 mill, then the PE for 2018 would be 7.5x.