Somero Enterprises Inc

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.

DateTypeTurnover
£(M)
Profit
£(M)
Basic
EPS
Ccy
31 Dec 2017Full Year861833.00USD
31 Dec 2016Full Year791425.00USD
31 Dec 2015Full Year701221.00USD
31 Dec 2014Full Year591526.00USD
31 Dec 2013Full Year45510.00USD

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:

shareholderAmount% Holding
Hargreave Hale5,982,87410.67
Unicorn Asset Mgt4,572,6618.13
Close Asset Mgt4,017,9627.14
Lazard Freres Gestion2,298,0004.08
Artemis Investment Mgt2,206,1233.92
Old Mutual Global Investors2,171,0003.86
Polar Capital2,160,8823.84
Jupiter Asset Mgt2,150,0003.82
River & Mercantile Asset Mgt2,113,6913.76
Aberdeen Standard Investments2,043,3143.63
Janus Investment Mgt2,011,9803.58
City Financial1,867,5943.32
Artemis Investment Mgt1,776,4433.16
Hargreaves Lansdown Asset Mgt1,694,9243.01
JPMorgan Asset Mgt1,555,3512.76
total38,622,79968.68

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:

Revenue Breakdown by Geography

A simple breakdown is:

Region%
North America68
EMEA20
ROW12
Total100

EMEA: Europe, India, Middle East, Scandinavia, and Russia

ROW: China, Southeast Asia, Australia, Korea and Latin America

Revenue Breakdown by Product Line

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).

Extrapolated profit for Somero

If one assumes that the extrapolation using first & second derivatives produces £24 mill, then the PE for 2018 would be 7.5x.


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