Somero Enterprises – Cracking interims lead to profit estimates upgrading

The interim results from this concrete levelling equipment group were very well received on Wednesday.

Some 298,725 shares had been dealt by the end of the day’s trading and they closed up nearly 16% on the day at 545p. That dealing volume was over five times the daily average – surely something of a pointer.

In fact, during the day they touched an all-time High at 550p.

Is there more to come?

Yes, most certainly is the immediate answer.

The group’s business

Set up in 1985, this Fort Myers, Florida-based group now sells into some 90 countries globally.

Somero Enterprises (LON:SOM) designs, assembles, remanufactures, sells, and distributes concrete levelling, contouring, and placing equipment worldwide, as well as offering related parts and accessories, together with training services.

The company’s equipment is used to place and screed the concrete slab in various building types, including floors in multi-storey buildings; and it is also used in the construction of warehouses, hospitals, manufacturing assembly plants, exterior paving and parking structures, retail centres, and other commercial construction projects.

Its cutting-edge technology allows its customers to install high-quality horizontal concrete floors faster, flatter and with fewer people.

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

Working on presenting new products

The group has also been working on new products for its marketplace.

The SkyStrip, the newest product, was introduced in June 2021. It is an innovative solution for stripping plywood from ceilings for the structural high-rise market segment. It expands the group’s range, now offering 18 products.

In the first six months of this year, it also finished the development of a new product that extends its reach to another slab-on-grade market segment that is currently unaddressed by the company’s product offering. That product’s release is expected to be at the end of 2021 or early 2022.

Blue-chip customer list

It has a blue-chip customer list with the group’s equipment being 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.

Excellent institutional backing

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%).

Excellent half-timers

Wednesday’s interim results announcement was far better than the market was expecting, immediately requiring estimates for the current year to end December to be upgraded.

Jack Cooney, the group’s CEO, stated that“H1 2021 was an amazingly active six-month period during which the company’s revenue, profitability and cash flow reached historic levels. The rapid acceleration of US non-residential construction activity in H1 2021 drove unprecedented demand for our products and the company delivered for our customers by successfully navigating supply chain challenges and quickly adding and training operations personnel.

It was a tremendous challenge to deliver these record setting results and a clear illustration of the talent, versatility, and dedication of the Somero team. While we expect supply chain challenges will continue in H2 2021, we have robust plans in place to mitigate these challenges.”

The interim result revenues were up 82% at $64.4m, while pre-tax profits were up 213% at $23.5m.

Broker’s estimates for the full year

Estimates now are lifted by the group’s brokers for this year, to $120m ($88.6m) of sales, adjusted pre-tax profits of $40.7m ($25m), with earnings lifting to 55c (34.9c) and covering a 41.2c (34.9c) dividend per share.

Analyst David Buxton at finnCap has upped his price objective from 590p to 700p on the back of the interims and the group’s current strength and confidence.

My View

Now it becomes very visible why the market piled into the group’s stock after the figures. The 16% jump to close that night at 545p, on over six times the average dealing volume at 308,817 traded, was very impressive.

Last night the shares closed at 542p, after a very dull day in the market, but with over 141,706 shares traded, which was some 216% over the average daily dealing volume.

They are so close now to my own price aim fixed just a month ago, having already risen 12.92% on my Profile price.

There is now a good wind in the sails of this group, which is why I would suggest that there is still a lot more to go for in the shares around these levels.

(Profile 11.08.21 @ 480p set a Target Price of 560p)

PS Note: Investor Presentation next Monday

Somero will be holding a live management virtual presentation and Q&A for investors via the PI World platform on Monday 13 September at 2:30pm.

The presentation is open to all existing and potential shareholders and will be given by Chief Executive Officer Jack Cooney, Chief Financial Officer John Yuncza and Vice President of Finance Enzo LiCausi.