- Flooring specialist reports multiple capital kit purchase delays
- Analysts slash 2023 forecasts and cut share price target
- Shares at lowest since November 2020
Higher interest rates, banks tightening lending rules and construction permit delays are some of the reasons why concrete flooring kit supplier Somero Enterprises (SOM:AIM) is a long way behind where it hoped to be.
As multiple customers defer equipment purchasing decisions, it leaves the AIM-listed company with a mountain to climb to hit previous full year guidance.
In January, Somero said it expected 2023 revenues (to 31 Dec) to roughly match 2022’s record levels of $133.6 million, albeit with lower EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin as the company invests to add ‘strategic resources for future growth’.
Investors can probably forget that now. FinnCap analysts this morning (20 Jun) took a fat red pen to forecasts, cutting revenue 10% to $120 million while slashing EBITDA, pre-tax profit, and earnings by 16% to 17%. The broker is now anticipating $36 million, $32.5 million, and $0.44 per share.
Even the dividend failed to escape taking a haircut, FinnCap now predicting a $0.27 per share payout rather than $0.31.
SHARE PRICE FLATTENED
Predictably, the share price fell sharply, plunging 13% to 288.14p, lows not seen since the pandemic was in full force. 18-months ago, the stock was flying high at 590p.
This is not the first time that Somero has been caught on the hop by the capricious construction clients it serves, as the share price chart shows, and it is this volatility that tends to scare off many investors from what is, at its heart, a fine company with market-leading IP-protected technology.
Somero designs and manufacturers top of the line laser-guided concrete floor flattening equipment that is becoming vital for the acres of automation-laden warehouse space needed as more businesses embrace digital commerce.
FinnCap noted Somero’s ‘extended project backlogs across a diverse project range, including warehouse, data centres and medical facilities’ its note to clients.
PREDICTABLY UNPREDICTABLE
Yet visibility limitations of a company exposed to a highly cyclical construction industry are reasons why investors discount the firm’s valuation despite impressive growth. Compound earnings per share has increased 20% a year over the past five, while Somero has delivered 15% average annual growth in net profit since it floated in 2006.
In September 2022, Shares highlighted that Somero’s PE (price to earnings) ratio had shrunk almost 40% to 7.9 times since the start of that year. After today’s forecast rejig, the 2023 PE stands at 8.4, based on FX website XE’s USD/GBP exchange rate of 0.782751.
FinnCap’s target price of 585p (lowered today from 705p) implies a PE of 17. Investors will have to decide whether this is a value opportunity, or a rather optimistic projection.
