Somero shares levelled after record US rains delay spending, 7 Jun 2019 10:31

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Somero shares levelled after record US rains delay spending

07 June 2019, 10:31

Shares in laser-guided concrete floor machine maker Somero Enterprises (SOM:AIM) get levelled, falling 22% to 277p after releasing a disappointing weather-related trading update.

ADVERSE WEATHER HIT

Record rainfall in the US has delayed project starts, which in turn has slowed the pace of equipment purchased. Roughly two-thirds of the company’s revenues are generated in North America.

This is not the first time that Somero has suffered weather-related issues.

Jack Cooney, chief executive officer (CEO), says: ‘While we are disappointed to revise our outlook for full year expectations in 2019, caused largely by poor weather in the US, we do not see a fundamental change in our markets and continue to have an optimistic outlook for the business in 2019 and beyond as our customers return to more typical levels of productivity.’

READ MORE ABOUT SOMERO HERE

This development will be galling for investors as spring has historically seen strong trading for the company and sets the tone for the rest of the financial year to December.

Although there has been some improvement in May, the company doesn’t expect to recapture the shortfall.

Somero now guides for revenues of circa $87m and earnings before interest, depreciation and amortisation (EBITDA) of circa $28m, representing declines of 7.4% and 9% respectively compared with 2018.

DOWNGRADES ENSUE

According to Reuters, the analyst consensus for 2019 revenues is $98.25m while for EBITDA the expectation is $31.3m. Therefore, if the company achieves its revised forecasts, analysts will need to downgrade their forecasts by 11.5% for revenues and 10.5% for EBITDA.

FinnCap analyst David Buxton has cut his price target from 465p to 420p, a 10% drop to reflect the revised company guidance. Lower cash levels has also prompted a 29.4% downgrade to the expected dividend. Earnings per share (EPS) have been downgraded by 12.5% to 35.7 cents, giving a price-to-earnings ratio of 14.9 times.

Historically the company has paid out half of earnings in dividends, plus half of the net cash balance in excess of $15m. On revised estimates, FinnCap projects an adjusted 2019 dividend of 18 cents and a special dividend of 9 cents, which on today’s lower share price would provide investors with a yield of around 8%.

The share price is now back at levels last seen in 2017, while earnings are roughly 30% higher. If the company can get back on track and crucially, if the current delays don’t result in cancellations, the shares could regain their footing.