Somero Enterprises Preliminary Analysis

Thursday, Jul 02 2015 by

As a unique business, Somero Enterprises Inc appears, at first glance, to be a rare example of a small AIM listed company with something of a competitive advantage!  Profitable, with excellent margins and returns on capital, the business is even trading relatively cheaply on a multiple basis.  While incorporated in the US, they have operations in many locations worldwide and are currently experiencing convincing growth in both revenues and profits.

Screen Summary

  • A PE of 11.2x and a PCF of 11.5x indicate that the firm may be trading cheaply relative to its earnings.
  • An ROC of 39.4%, ROE of 53.2% and operating margins of 21.2% are all indicative of a high quality business with potential for pricing power.
  • A PB of 4.2x is high, but there may be evidence to suggest the existence of significant internally generated intangibles.  Further analysis may or may not confirm this.
  • Revenue has grown steadily over the past few years, as has net income since the firm has recovered from the recession of 2008.

Company Background

Somero develops and manufactures laser guided machinery used in horizontal concrete placement; products which allow the placement of large areas of concrete flooring quickly and to a high standard.  All of their products are protected by patents and really do what they say on the tin - head over to the Somero website for some videos of the machinery in action.  In addition to making the products themselves, they run training courses to teach customers how to use the products to their full effect to produce quality concrete flooring that meets high US floor flatness standards.  The idea is that, through this training and customer support, they can establish long lasting relationships to ensure that future referrals, and therefore sales, persist.

Somero's Market Position

It is claimed, in the 2014 year end accounts, that Somero Laser Screed equipment holds a 99% market share in the non-residential, horizontal concrete flooring industry in over 92 countries.  This is quite the claim and I can't comment for now whether this is true or not, but if so then this could be a text book example of a business with a strong competitive advantage.  If that many construction workers are trained on, and require the standards set by, Somero's equipment, then…

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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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