Somero Enterprises – A Solid Construction Sector Play

The interim results from the AIM-quoted and Florida-based concrete placing and levelling products group Somero Enterprises (LON:SOM) will be announced on Wednesday 8 September.

They should be showing a good advance for the first six months of the group’s current year to end December.

Upgraded full-year guidance

Just over a month ago, the company issued a positive trading update and raised guidance in the market for the full year’s performance.

The half year to end June saw such a good set of revenues being generated that the group beat its own expectations as well as the market’s. Furthermore it appears that momentum has carried on into the second half of 2021.

Previous forecasts suggested that full year turnover would be around $100 million, but now the group’s management is confident enough to indicate $110m as being more likely.

More than levelling

Together with its subsidiaries, the group is involved in the design, assembly, remanufacturing, sale and distribution of concrete levelling, contouring, and placing equipment worldwide. It also offers related parts and accessories, as well as providing training services.

Somero’s vision is for its innovative, cutting-edge technology and processes to be in use wherever a ready-mix truck is discharging concrete for a horizontal concrete slab.

The company’s equipment is used to place and screed the concrete slab in various building types and scales.

A global market

It markets and sells its products primarily to small, medium and large concrete contractors, as well as to self-performing general contractors. 

The group’s strategy is to provide innovative products and solutions to concrete flooring contractors that enable them to attain the highest level of flat-floor precision at the lowest cost.

Faster, flatter with fewer

It provides industry-leading concrete-levelling equipment, training, education and support to customers in over 90 countries. By using Somero technology, its customers can install high-quality horizontal concrete floors faster, flatter and with fewer people.

Somero’s global headquarters, training facility and the Somero Concrete Institute are located in Fort Myers, Florida. The company’s operations and support centres are located in Houghton, Michigan. It also maintains a sales, service and training facility in Shanghai, China. Other sales and service offices are located in Chesterfield and in New Delhi, India.

Specified by the professionals

Its equipment has been specified for use in projects that require extremely flat concrete floors such as in the construction of warehouses, manufacturing assembly plants, schools, hospitals and other commercial locations.

The group’s equipment has been used for facilities for a variety of the world’s largest organisations including B&Q, Carrefour, Coca-Cola, Costco, FedEx, Home Depot, IKEA, Lowe’s, Mercedes-Benz, ProLogis, Tesla, Toys ‘R’ Us, the US Postal Service and Wal-Mart.

Good institutional following

There are some 56.4m shares in issue.

Significant shareholders include Unicorn Asset Management (9.72%), Canaccord Genuity Wealth Management (9.58%), Close Brothers Asset Management (7.86%), Artemis Investment Management (6.44%), Hargreaves Lansdown Stockbrokers (5.38%), River & Mercantile Asset Management (4.84%), Janus Henderson Investors (3.81%), Chelverton Asset Management (3.73%), Lazard Freres Banque (3.62%) and Aberdeen Standard Investment (3.44%).

Latest revenue and profit projections

Following the group’s early July trading update, analyst David Buxton from brokers finnCap upped his estimates to $110m revenue for the year and adjusted pre-tax profits of $33.6m. This works out at 45.4c per share in earnings and easily covers a 29.8c dividend per share.

Over at Arden Partners, analysts Andrew Gibb and Manjot Heer are estimating $110.2m revenue with $34.7m profit, earnings of 46.9c per share and a more modest 23.3c dividend. For next year, they see $121.1m sales, $39.1m profits, earnings per share of 52.7c and 26.3c in dividends.

Having raised his price objective, Buxton is now aiming for 590p against a previous 520ptarget. The Arden team are currently looking for 600p.

My View

Those share price aims compare with the current price of 480p, so there is some strong upside left in the valuations.

With a current valuation at £270m, Somero Enterprises does look to me to have some real short-term attractions. The interim results on 8 September could well see positivity in both the statement and the share price.

I’ve set my target price at 560p.