Somero - Trumptastic Tax

Tuesday, Dec 05 2017 by
12

The proposed Republican reduction in the corporate tax rate in the US appears to be reaching its denouement. There are currently 2 tax plans at House and a Senate version

The next step in the legislative process is to reconcile the two versions. The obvious over-riding positive is the reduction in corporate tax rates to 20% from 35%, which directly impacts Somero’s bottom line. When this rate reduction would become effective isn’t clear yet - the House version proposes 2018 while the Senate version proposes 2019. Given budget deficit implications, one would assume the rate reduction wouldn’t be phased in until 2019 although the ever bullish Mr Trump is assuming they come in on 1st Jan 2018.Expect further late night tweets on this subject !

For Somero, using FY18 estimated pre-tax income of $25m (my VegPatch estimate, treat with caution!), the rate reduction equates to over $3m in tax savings, or about $0.06/share. In addition, the more generous capital equipment expensing rules should encourage faster investment in equipment, though primarily impacting the timing of equipment purchases by customers.

5a26ed6459faaSomero_Trump_tax_impact_on_

Putting the tax saving on a Group rating of c10x PE = 6c or 4p * 10 = 40p of upside.

The reconciliation process is expected to move rapidly so this should become clear soon.

I have emailed the Somero FD John Yuncza his response was "We can’t see any notable negatives from either bill."

I remain a holder.



Filed Under: Industrials,

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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 »

LSE Price
405p
Change
3.2%
Mkt Cap (£m)
227.9
P/E (fwd)
n/a
Yield (fwd)
n/a



  Is Somero Enterprises Inc fundamentally strong or weak? Find out More »


10 Posts on this Thread show/hide all

Edward John Canham 11th Dec '17 1 of 10

Yes, I was expecting a bigger reaction on the Monday and btw I think your estimates for 2017 and 2018 are on the cautious side IMO, but we'll see in due course.

Phil

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LovelyLovelyGorgeous 12th Dec '17 2 of 10

I love "veg patch quantum computing"

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VegPatch 12th Dec '17 3 of 10

In reply to LovelyLovelyGorgeous, post #2

Thats the power of a PC, microsoft Exel and a cup of strong coffee !

Who needs AWS, MS Azure, AI, Wandisco Fusion, and Sunway TaihuLight*....?

(*the Sunway TaihuLight can "only" do 43 quadrillion calculations per second)

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VegPatch 12th Dec '17 4 of 10
4

Back topic, I am hoping that Somero will have benefitted in H2 from a pick up in non residential construction activity.

I get this release every month
http://www.abc.org/NewsMedia/NewsReleases/tabid/144/entryid/9870/construction-backlog-surges-sets-record-in-third-quarter-abc-says.aspx

Basically it says that the backlog in commercial and infrastructure construction spend has picked up. This is work agreed on but not yet completed. It is biased to the South & North East of the US in terms of the biggest gains. Clearly the South has been bolstered by post hurricane spend, but I am hoping the picture carries on from the Somero H1 outlook statement which said

"The positive trading momentum experienced at the end of the first half in North America has carried over into H2 2017, reflecting the healthy state of the non-residential construction market in the United States. We are pleased with the broad interest ongoing across all our product lines, including our new products, as well as in our customers' confidence in their project backlogs. Together, these factors provide us with confidence in our expectations for a solid performance in North America for the remainder of 2017."

Remember Somero's N American sales performance was muted by v high levels of rain in H1. So the company said it had had a good May & june and expected the trend to continue. I also had a quick look at the Ashtead statement today where, aside from Ashtead continuing to take share, I think pointed to a robust N American economy.

Anyway I hope this helps.


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Edward John Canham 12th Dec '17 5 of 10

Thanks for the update - most appreciated.

Phil

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daveinthelakes 14th Dec '17 6 of 10
1

Looks like the tax deal is approved and so I have bought back into Somero Enterprises Inc (LON:SOM) having sold out at 314p in April.

Thanks for your insight.

Bear in mind Somero Enterprises Inc (LON:SOM) do not really benefit from infrastructure projects as they don't usually use laser levelling. It is really big box floors, office campuses etc but as USA economy is expected to grow in '18 I expect more property development

Also acts as a hedge for me ( I have 40% of my portfolio outside UK) and although mixed messages from currency analysts I think cable more likely to be 1.25 than 1.45 sometime next year.

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Edward John Canham 19th Dec '17 7 of 10

Hi

Looks like the market has finally bought into your argument.

Phil

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VegPatch 19th Dec '17 8 of 10
1

I hope it will go higher if trading proves to be robust. Typically Somero has issued a trading update in the second week in Jan, so fingers crossed.

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Edward John Canham 19th Dec '17 9 of 10

Likewise.

I thought the only thing holding it back after the last results was a slight dip in its NA sales - which the company put down to weather factors. There was a sharp rise in European sales which more than compensated. There is a potential for NA to power back and Europe to keep on rising which would give a very good result IMO.

Lets see!

Phil

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vik2001 19th Dec '17 10 of 10

this should have some nice upside due now that tax bill has passed... I been waiting to get back in on this and this week has been prefect timing

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