Tipped by Simon Thompson at the IC2 Jun 2015 00:01
I came across good coverage by Simon Thompson at the IC from 19th May which hasn't been posted here FYI, with a 185p target price...
"Somero's solid performance
Aim-traded Somero Enterprises (SOM:140p), a Florida-headquartered company that specialises in the design, assembly, and sale of patented, laser-guided concrete levelling equipment for commercial floors, has issued a reassuring trading statement.
The strong momentum seen across the business last year has continued into the first 20 weeks of the new financial year. Sales from the majority of its product lines have been solid and growth broad-based across North America, Europe, Middle East, Southeast Asia and Latin America. In fact, new products have yielded "results ahead of forecasts", and activity levels for North American customers "remain high due to pent up demand and the backlog for new project starts." The healthy North American project pipeline, coupled with technology upgrades are key to the higher demand being seen for Somero equipment. The region accounts for almost two thirds of Somero's sales, so is important.
Internationally, the Middle East, Latin America, and Southeast Asia have posted growth rates ahead of last year, with Southeast Asia's performance driven by accelerated activity in Indonesia and Vietnam. Even the eurozone continues to "show signs of improvement from a variety of countries, reinforced by increased customer inquiries, a leading indicator of future sales performance". The only blip came from China, a region which accounted for 16 per cent of Somero's sales last year. Trading there started slower than expected, but momentum is now picking up and the region is still expected to post its "fifth consecutive year of growth".
Importantly, overall trading points to another year of decent growth: analysts at broker Profile predict that current year revenues and pre-tax profits will both rise by around 7 per cent to $63.8m and $13.2m, respectively, to underpin a further hike in the dividend to 6¢ a share, or 3.8p at current exchange rates. This implies a 2.8 per cent prospective dividend yield, with the payout covered 3.3 times over by adjusted EPS of 19.7¢, or 12.5p a share. On this basis, Somero's shares are rated on a modest 10.5 times current cash adjusted earnings after factoring in a current cash pile worth 7.5p a share.
But that lowly rating ignores the cash generation of the business as analysts predict Somero's net funds will more than double to $14m (£8.9m), or 16p a share, by the year-end. In other words, assuming Somero hits analysts' earnings estimates, then at the current price the shares are being valued on only 9.5 times cash adjusted likely earnings after factoring in the year-end forecast cash pile. In my book that represents solid value.
...I am comfortable with my 185p year-end target price....I continue to rate Somero's shares a buy."
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