Somero Enterprises (LSE:SOM) is a play on the construction space, but in this case, warehouses, car parks and anywhere else that requires accurate engineering solutions for flat concrete spaces and construction projects requiring large amounts of concrete. But let’s think about warehouses here.
Somero Enterprises is primarily a US-focused play but it has construction industry customer distributed around the world. Its clients have been heavily involved in the construction of new warehouses, needed to address ongoing supply chain problems.
The share price has been as high as 560 p in recent days but it is currently trading at 500p [at time of writing]. The dividend yield of 5.68% looks solid (see below). The company has lost a little momentum recently but the PE ratio is down at 12, making it look relatively cheap compared to last year. The PEG is 0.309 for 2020 and 0.185 on a trailing 12 months basis. Sales growth is up a punchy 82% while EPS growth is up 218% according to Stockopedia.
Established engineer in the concrete construction business
Somero Enterprises has been in the business for a long time, pioneering the Laser Screed machine market in the mid-1980s and building up a solid portfolio of machinery patents since then (over 60 at last count). Its equipment is used to place and screed concrete slabs in all building types, including all floors in multi-storey buildings.
Seasoned investors will remember Somero Enterprises as a rapid growth stock back in 2018, but it capped off several years of strong top-line and profits growth with a plunge in turnover and profits in 2019.
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Things do seem to be back on the mend at Somero Enterprises however – its 1H revenue profile looks good ($64m, up from $35m in 1H 2020), thanks in the most part to what it calls “a very strong and highly active US market.” EBITDA was also well up at $24.6m ,from $8.7m. The board is now saying we can expect revenues will be around the $120m mark (up from previous expectations of $100m).
Somero Enterprises is a good dividend play
Investors also like Somero Enterprises because it generates a lot of cash. For example, in 2020 it paid out 16.81 cents in regular dividends along with a supplementary dividend of 18.1 cents. It relies on a formula to calculate this – if the year end cash total surpasses $20m it will distribute 50% of the excess as a dividend.
Somero Enterprises distributed a nine cents per share interim dividend, which is +125% against its 1H 2020 dividend. Net cash at the end of June was $16m.
Somero Enterprises is obviously keen to use its war chest to reinvest in new projects, including R&D. New products are coming online – e.g. a new plywood sheet stripping machine that can assist with safe removal of shoring.
This company is well-positioned to benefit from the boom in the US construction space in the next 12 months. We still anticipate a government-driven construction frenzy post-pandemic the US has not seen since the 1950s. The expansion of warehouse facilities is going to keep Somero’s clients busy for quite some time to come.