A recent top up of a current holding has been Somero. Somero produces laser-guided equipment that automates the process of spreading and levelling volumes of concrete for commercial flooring and other horizontal surfaces.
An extract from their 7th January 2016 trading update is shown below:
In the six months since 30 June 2015, the Company performed strongly, particularly in the final quarter with monthly sales at an all-time high in December, which is not traditionally the strongest month of the year. As a result, the Board is pleased to announce that the Company now expects to report Revenue ahead of current market expectations for the full year. Furthermore, as a result of an improved gross margin performance, the Company now expects to report EBITDA materially ahead of current market expectations for the period.
The Trading update goes on to say:
The year-end demand for the Company's products in North America was predominantly driven by technology upgrades and fleet additions, highlighting lengthy project backlogs for our customers that extend well into 2016.
While it is too early to provide detailed guidance for 2016, the Board is confident that it will deliver another year of growth and that the high-level of activity in December will continue into 2016 providing a solid start to the year.
All in a very pleasing update that prompted me to add a third tranche of Somero shares.
The figures continue to look attractive to me:
Revenue is increasing year by year as are profits
PE(f) of 8.6 with a market cap of £76.9m and supported by £10m cash and no debt. This makes the rating, in my opinion, look even more attractive when you take into account the cash position.
In common with a lot of stocks I like, cash-flow ps appreciably higher than eps and also lots of free cash-flow: yes, once again it’s boring but I like being bored.
Stockopedia has the ROCE increasing from 2012 to 2015 year by year over the three years as 25.3, 39.4 & 42.5.
The operating margin is shown as a very attractive 22.6%.
A reasonable yield is provided at 3.5% which is well covered and easily paid from an abundance of FCF.
My old friend Prof Piotroski weighs in with a value of 8 which is very reassuring. The two stock ranking systems operated by Stockopedia and by Sharelockholmes also look impressive and add to my feeling of comfort.
All in all, to me it appears a great value sound business paying a decent dividend and offering reassuring trading and outlook statements. Is it too good to be true? Well, unfortunately, the market seems to think so either that or it’s just a tad overlooked! It may be that the market sees the business as highly cyclical and will not award a better rating to Somero. Also the latest broker estimate on the 7th January after the trading update only projected a modest increase in eps in 2016, maybe after the release of the full year results there may be a more bullish revision; we will have to wait and see.
As regards performance since I first bought in September 2015, the total return is about 4%. Maybe I will catch a cold with this one, who knows.
As ever, this is just my whittling on about my thought process in making a share purchase and in no way should be seen as a recommendation to purchase.
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