LON:SOM | More Upgrades From Somero - Stock Rank 99

12th Jul '16 by VegPatch

10 comments 7521 reads

Another positive update from Somero today ahead of its H1 results in September. June was very strong and so the company expects FY for December 16 to be just ahead of consensus.
Remember that the last update in early June signalled trading was in-line with consensus, so this is a step up and is being driven by a very strong US market.

Personally I think that is a positive sign, but I am not getting too revved up as Somero has really limited trading visibility. However on the low valuation, PE 9x pre trading and translational upgrades, and cyclical nature of the business as I have discussed here http://www.stockopedia.com/content/somero-good-portents-from-ashteads-q3s-and-only-on-a-pe-of-10x-growing-topline-40-93646/ any trading upgrade is a good upgrade. Given GBP is around $1.30 to USD, there are translational upgrades to come.

I am still a holder.

I also think this provides a decent look through to Ashtead Ashtead (LON:AHT) and vice for those that are interested.

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iwright7

12th Jul '16

Veg,

There was a +ve Somero review from ST in the IC yesterday pointing out that they will benefit greatly from the current $ exchange rate and pointing out that the North American market accounts for 70% of Somero's sales. Today's trading update strengthens the bull case.

Carey Blunt

I've bought some more today. The one thing that I have Brexit to thank for is that it caused me to get rid of my low conviction stocks and anything I thought would be hit by a downturn and its allowed me to concentrate my positions on a smaller number of high conviction stocks - of which this is one.
There is some quote isn't there about sometimes the best share to buy being one that you already own.

Rusty2

This has been discussed before, why if they are American company will they benefit from fall in £? Really ST sometimes talks a load of rhubarb.

ls2g08

The stock price will increase (as no doubt you understand that stock prices are a function of discounted cash flows and as these cash flows are in dollars when translated into pounds, the figure will now be larger).
You are correct in operational terms though, as most of their costs will also be in dollars. Therefore the stock price should rise to offset the translation effect. So in reality the GBP depreciation should only be a marginal consideration when buying/selling this share.

I don't want to re-open a debate if its been done before but isn't the point that when dollar earnings are converted into Stering (because the share price is in Sterling even if the earnings are in Dollars) then the Earnings Per Share figure in Pence will be higher if Sterling is weak?

Trigger14

Their share price should benefit directly as it is in £

edit - beaten to it...

I can see the arguments but at the end of the day its an American company so its profits will not be converted into £, so yes some figures will look higher because the share price is in £. But really that is just a distortion of the figures.

janebolacha

Herbie, for an investor, it isn't "just a distortion of the figures".
Currency movements are an important variable of investing.
For a sterling investor, profits earned in dollars have become
of greater worth in sterling, hence more valuable.
That's why many London-quoted companies with dollar
earnings have seen their share prices increasing, that's why
the FTSE100 (with so many overseas companies in the index)

has done so well since the referendum result

and the depreciation of sterling against the US dollar.

Yes I understand that but Somero Enterprises Inc (LON:SOM) is not a UK company, so its profits will not be converted, that is my point. I have some that are UK companies with revenues/profits in US$s, yes they are benefiiting.

rhomboid1

I think the key issue is that dollar revenue when converted to dividend payments in GBP goes further so a more generous (for UK holders) income stream . That effect is obviously more pertinent for big dividends than small, Royal Dutch Shell (LON:RDSB) and Capital Drilling (LON:CAPD) are my chief beneficiaries but Somero Enterprises Inc (LON:SOM) should get a smaller divi "kicker" as well

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VegPatch

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