Somero

SPECULATIVE BUY

18/04/2007

With no competition apart from traditional methods involving planks of wood, US-based Somero is eyeing global growth from its laser-guided equipment that ensures concrete is as flat as possible.

Concentrating on the ‘non-residential’ construction market, Somero’s technology improves upon time-honoured, but inefficient, techniques for making concrete floors flat. The group’s machinery speeds up the time for “screeding” large swathes of concrete for large retailers and others with stockrooms full of high racks of stock. They need floors to be totally level so that their fork-lift trucks can access them accurately.

The company, which was bought from multi-billion dollar conglomerate Dover Corp by a private equity firm that in turn exited at float last December, has been successful in the States and has sold into 44 countries overseas.

Despite nearing saturation in the US for its larger screeding equipment, last year Somero grew 32% domestically from new ‘smaller line’ product developments including the PowerRake and the CopperHead. This compared with its fastest growing geography, Europe, where sales rose 39% from large and small lines and now represents 22% of the business.

This worldwide growth was reflected in a 32% increase in group revenues to $55.9m (£27.9m) last year and a 38% rise in net income to $7.8m. A progressive dividend policy has been initiated with a 0.33c (0.16p) payment.

With low levels of capex, this is a nicely cash generative business that added $7.5m cash last year to the $10m raised at IPO to pay down the debt built-up by its previous private owner to $21m.

CEO Jack Cooney says the US market ‘is not ready to slow down’ and declares that new products will continue to drive growth. As for the rest of the world, he says, as well as establishing new distributors, Somero is following existing blue-chip customers into some fast growing markets including Eastern Europe, China and India.

If growth can be maintained at current levels, the current share price, less than 15 times earnings presently, will look good value. Could be worth a punt.