Small Cap Value Report (Wed 4 September 2019) - SOM, AFX, QUIZ, CAMB, FDEV

Wednesday, Sep 04 2019 by

Good morning,

Today we have news from:

Somero Enterprises Inc (LON:SOM)

  • Share price: 232p (-17%)
  • No. of shares: 56 million
  • Market cap: £131 million

Interim Results

These are difficult times for investors, and it's unfortunate to see another private investor favourite which has started to struggle.

Somero makes concrete-levelling equipement and sells it worldwide. We already knew that it had a disappointing H1, after a major profit warning in June.

Unfortunately, the negative trends in trading appears to have spread internationally.

In June, Somero reduced its full-year revenue forecast to $87 million.

Today, it reduces this forecast further, to $83 million - $87 million. The broker Finncap is using $84 million as its central estimate. Revenues last year were $94 million.

What's gone wrong?

The profit warning in June was based on poor weather in the US, Somero's home market.

We now find that contracts have slipped in Europe and the Middle, and "wider macro pressures" internationally are mentioned:

Whilst towards the end of the period, trading in Europe and the Middle East fell below the prior year in part due to the timing of certain contracts, we remain confident to deliver improved H2 2019 results, broadly in line with guidance for the full year, notwithstanding the wider macro pressures in Europe, particularly Germany, the Middle East and Australia.  Pleasingly, a number of our other markets delivered growth, alongside growth from new products.

In H1, European revenues are down by 26% to $5.5 million.

In China, "newly imposed tariffs and competition in the low-end productivity segment of the market are resulting in margin pressure."

I have repeatedly expressed scepticism that Chinese builders would be willing to pay a US company for technology of this sort. Somero's reference to competition - i.e. Chinese companies making very similar machines - helps to support this view.

In the Middle East, sales collapsed by $1 million to $0.2 million. The timing of projects is blamed -…

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All my own views. I am not regulated by the FSA. No advice.

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Somero Enterprises, Inc. is a manufacturer of laser-guided equipment. The Company's equipment automates the process of spreading and leveling volumes of concrete for commercial flooring and other horizontal surfaces, such as paved parking lots in North America. The Company's products include S-22E, S-15R, S-15M, STS-11M, S-840, S-485, CopperHead XD 3.0, Mini Screed C, PowerRake 3.0, 3-D Profiler and SiteShape. Its Somero Floor Levelness System monitors Laser Screed performance, operator performance and reports alert percentages of issues. The Somero SiteShape System allows for grade shaping automatically using users' motor grader, dozer or other grading machine. The Somero 3-D Profiler System allows automatic paving of contoured sites using a Somero Laser Screed equipment. The CopperHead XD machine encounters applications, such as chaired rebar, low slump and poor subgrades. The Somero eXtreme Platform (SXP) allows users use their Laser Screed equipment. more »

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Alpha FX Group PLC is a corporate foreign exchange (FX) broker with a focus on helping its clients to control the impact currency volatility has on their business. The Company operates Alpha FX. Alpha FX develop tailored hedging programmes that help businesses balance when, how much and how far forward to buy currency. Its Approaches include Passive Hedging, Active Hedging, Hedge Accounting, Dispute Resolution and Key Features. Passive Hedging Strategies are focused on protecting businesses from the unpredictable nature of currency markets in order to provide a predetermined level of financial stability. Active Hedging Strategies provide the protection and stability of a passive strategy. Hedge Accounting helps businesses, who are susceptible to volatility in their Profit and Loss over their reporting period. Dispute Resolution provides a resolution to mis-sold FX options. Key Features include technical analysis, hedging facilities, settlement, reporting and pricing. more »

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QUIZ plc is United Kingdom-based global women's wear brand company. The Company is focused on providing occasion wear and dressy casual wear primarily for 16 to 35 year olds and offers clothing, footwear and accessories. The Company’s occasion wear provides maxi and mini dresses, matching tops and bottoms, and footwear, bags and other accessories that are designed to complement a particular outfit. The Company’s dressy casual is designed to provide the latest on-trend clothes, shoes, bags and accessories that have a glamorous edge. In addition, the Company’s products includes denim, playsuits, shirts, tops and skirts. The Company also provides a range of outerwear such as faux fur jackets, parkas and biker jackets. Footwear offers dune River Island, missguided and ASOS. The Company’s brand operates in 19 countries through 65 international franchise stores, concessions and wholesale partners. more »

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  Is LON:SOM fundamentally strong or weak? Find out More »

45 Comments on this Article show/hide all

Robert Smith 4th Sep 26 of 45

In reply to post #510036

What ! Floor slab first and then walls and roof? Are you serious?

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financeguru2000 4th Sep 27 of 45


Any views on (LON:MGR) and the implications of this merger?


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covkid 4th Sep 28 of 45

In reply to post #510086

Absolutely...................floor slab first....................

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MBFP 4th Sep 29 of 45

In reply to post #510021

Thanks Chris.
I presume the drop in SP is related to the lower revenue for 2020. Markets are always forward looking. It's all about the future. Having said that FDEV will are now releasing a new game every year, up from every two years. They are also now starting to publish games in partnership with other publishers. The first agreement has now been signed and the first game in partnership will be released in 2 to 3 years. Hopefully this will be the first of many partnerships. FDEV have also recruited an additional 120 staff in the last 12 months to 460 staff, which is an increase of a third. I have also seen several tweets from FDEV in which they are looking for more game developers. Gaming must be an appealing area to graduates and IT professionals.

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Jimbonambo41 4th Sep 30 of 45

In reply to post #509996

i hold here but the operating leverage means a 21% drop in revenue could have a much larger drop in bottom line. now, there's time to adjust fixed costs and its not 100% that they lose everything from when the licence lapses but there could be very steep drops in EPS here ...

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WDWombat 4th Sep 31 of 45

In reply to post #510081

I had a quick look at the 3 (or are there more?) listed forex companies - AFZ, AGFX & EQLS (now knows as Equals formerly FairFX). I don't own any shares here but I have been using prepaid FairFX card for a while and just had a natural interest. It did strike me that this business has very low barriers to entry, that margins would come down if I am correct, but that their growth is more bad news for banks. I was amazed at the poor profitability to date of EQLS against the other two - though there is an inflection point suggested in forecasts. EQLS has just raised around £15mn in a placement by the way. I was interested to see Stocko forecasts having a profits drop for AGFX this year- was this because of IPO inflation or merely excessive conservatism? Or the likely impact on forex business of everybody's favourite political discussion? I like the comments above on the management style of AFX - perhaps this gives them a competitive advantage, but I can't help feeling that there are too many cooks here if we remember all the unlisted companies (Revolut etc) in this pot.

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jared007 4th Sep 32 of 45

I've been watching Alpha FX (LON:AFX) for a while this year and was all set to buy about a month ago. However, when it came to the moment, the prices quoted to me meant the spread was like 5-6% so I just couldn't bring myself to do it.

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Trident 4th Sep 33 of 45

In reply to post #510101

always start with the ceiling, using a patented Sky every time :-)

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FREng 4th Sep 34 of 45

A macro question.

Generally, if the pound falls against the dollar, then the FTSE 100 rises because dollar earnings become worth more. Today the pound rose and so did the FTSE 100.

Is this likely to be because the market traders (or their algorithms) assume from last night's vote that the pound is actually likely to fall in the longer term but that interest rates are more likely to rise in the short term?

Or am I just over analysing a random walk?

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jombaston 4th Sep 35 of 45

In reply to post #510116

There are many disrupters and competitors in financial services but there are also some big and inefficient legacy companies (banks) with enough business to lose to sustain lots of up and coming businesses!

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andyfwwrench 4th Sep 36 of 45

In reply to post #509956

£SOM is why everyone needs a global macro view in their process. My opinion is that it is likely to go down quite some more, though I'm not confident enough to short it, and besides it has net cash so it will survive. As a cyclical it is clearly way to early to buy as it looks cheap - the time to dive in is when it looks expensive. With a global slow down underway capital expenditure on plant is one of the first things to be deferred and then cut. Revenue is very likely to drop, but with foresight it is difficult to tell by how much.

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Old ManFit 4th Sep 37 of 45

In reply to post #510151

I follow a few FX traders on Telegram and Trading View, mainly to try and get a better understanding of the FX markets - last few days most have recommended staying away from GBP trades as the currency is just too volatile and difficult to predict using fundamentals and Technical analysis. 

Last night whilst the vote (in Parliament at 2200)  was on I had the GBP/USD up (out of interest) - spread on GBP  jumped to 20bps (normally 0.5bps) for around 15mins, then trading was very light.  I think ultimately, most traders recognise they can not predict the value of the GBP until the Brexit issue is resolved and some semblance of predictability returns.

So seeing GBP up and FTSE 100 up wasn't a surprise, nothing makes sense at the moment, trusted rules cannot be relied on. 

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jonesj 4th Sep 38 of 45

In reply to post #510146

With agricultural buildings, it's not uncommon to do the steel frame, the roof and then the concrete slab afterwards. Having a level floor is often not critical here.

However, most of the photos for Somero, Ligchine and other concrete screeding machines show the slab being done before the roof.

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herbie47 4th Sep 39 of 45

In reply to post #510151

I thought it was because a "no deal brexit" is now less likely and brexit maybe postponed or not happen. But it is difficult to call. Why will interest rates rise?

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nicobos 4th Sep 40 of 45

Staffline (LON:STAF) release an afternoon RNS that HR Net have swept up some more shares and are now just below mandatory takeover level.

As a Corporate acquirer that has been acquisitive in the past, will be interesting to watch their next move.

GBP weakness has seen a fair few opportunist bids recently - will Staffline (LON:STAF) be next ?

I have a position and either way, will provide great support for the stock and underpin value whilst a recovery hopefully starts to take hold and means they can’t buy the business too cheaply.

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elviron 4th Sep 41 of 45

In reply to post #510171

On the contrary, in my opinion, the volatility can create some excellent trading opportunities in FX.

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Velse 5th Sep 42 of 45

In reply to post #510106

Just to offer my opinion/experience on this - it isn't an appealing area as such. Yes, many want to work in games, but the industry burns people out and the pay is a good deal less than one can earn in other areas of technology, and the hours are longer, etc. We work in games 'for the love' of it. Hiring at the moment is quite difficult, not least due to Brexit; there are not enough Brits capable of doing the work. I have worked as a game developer for nearly fifteen years.

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Gromley 5th Sep 43 of 45

Whoops - wrong thread.

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MarkLDN 9th Sep 44 of 45

My email to Somero:
"There is a lot of confusion and conflicting information on the forums about why bad weather would cause such a dramatic loss in revenue, and furthermore, scepticism about how the revenue drop in Europe/Middle East and lacklustre performance in China are unrelated. Is it possible to give some more reassurance here about the causes?"

Their response:
"Thanks for getting in touch. There is a retail investor presentation from Somero due to take place at 12:30 UK time this Thursday, 12 September. Would you perhaps like the dial in details so you can listen in to management’s presentation and the Q&A, as I’m sure they’ll cover off regional performance in this?"

Dial-in details:
UK (Local): +44 20 3655 9505
Guest Dial-in Code: 1390231#

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JollyBiologist Thu 8:52am 45 of 45

In reply to post #511556

Ha, that's exactly word for word the response I had when I sent in a similar e-mail. I'm guessing they're getting a lot of concerned messages from PIs and needed to have a standardised response. The presentation should be interesting...

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 Are LON:SOM's fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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