RE: SOM tipped in the IC12 Sep 2016 08:40
Here's the full tip in the IC (cheers mate):
'This week's interim results for Somero Enterprises (SOM) feature the sort of numbers investors dream about. As prefaced in a July trading update, almost every key measure of financial health was up in the first half of 2016, as the specialist in laser-guided concrete levelling equipment benefited from a surge in demand for its smaller and medium-sized product line and excellent conditions in its core North American market, which increased its share of total sales from 68 to 75 per cent.
The region's 24 per cent sales growth can be partly explained by what chief executive Jack Cooney described as a "tremendous build-up in pent-up demand". Mr Cooney also told us that while the growth profile was not unusual, demand remains "very, very good". This is despite a decline in sales of pricier large line machines from $13.7m (�10.2m) to $11.1m year on year, although the larger 23 per cent drop in units sold suggests Somero did not give away much ground on pricing.
It is this sometimes lumpy order profile that means July's earnings forecast upgrade for the year is still likely to be cautious. A delay in three large line machines from one period to the next can have a huge hit on reported earnings, and also explains why sales in some of the company's smaller markets - including Korea and Latin America - declined dramatically. These drops were offset by strong performances in Europe, Australia and China, where combined sales were up by a quarter, the latter partly supported by a long-term financing programme, which accounts for just over a third of sales.
Although the timing of tax payments and an increase in working capital caused operating cash flow to fall a fifth to $5.8m, management found sufficient headroom to increase the interim dividend by nearly a third to 2.5� a share. As management is keen to balance the weighting of shareholder returns, investors should expect a smaller increase in the final dividend.
FinnCap expects full-year adjusted pre-tax profit of $20.3m and a marginally increased EPS of 22.7�, against $17.6m and 23.3� in 2015.
Somero holds a decent cash pile, comes with a solid yield, well-covered dividend, and yet remains priced at 10 times this year's forecast earnings, dropping to a PE of nine in 2017. With management reporting a continuation in the strong North American sales momentum, we see little reason for changing our original buy recommendation (152p, 10 March 2016). Buy.'
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