Somero Enterprises issues second warning of the summer

Already down 40% since June, will this former stock market darling bounce back or warn again? 

Buoyed by a decade of robust global economic growth, concrete levelling specialist Somero Enterprises (LSE:SOM) has gone from strength to strength since the financial crisis.

Revenues are more than double where they were in 2008, with underlying earnings for the last year of $30.8 million in sharp contrast to less than $1 million in the aftermath of the crash.

Florida-based Somero hasn't just benefited from economic tailwinds, however, with geographic expansion taking it into 90 countries and the company also benefiting from investment behind its cutting-edge machinery. The most recent example is the SkyScreed 25, which is meeting needs for concrete screeding in structural high-rise environments.

Shares have achieved some spectacular gains on the back of this performance, with the AIM-listed stock trading above 400p this time last year. Now they are half this level, having fallen during the stock market turbulence at the end of 2018 and again after trading was impacted by the "extraordinary" level of rainfall seen in the United States in the first half of 2019.

This resulted in project delays that in turn slowed the pace of equipment purchases, leaving North American sales down 11% in today's interim results. But as US non-residential construction market remains healthy, Somero expects a rebound in the second half.

Full-year revenues are now expected to be between $83 million and $87 million, which would represent the first decline since 2010 as it compares with a haul of $94 million last year.

What's also troubling investors - adding to today's 23% fall in share price - is that trading in Europe and the Middle East declined towards the end of the half year, in part due to the timing of certain contracts.

Source: TradingView Past performance is not a guide to future performance

Somero is confident of a second half improvement, but remains wary of the wider economic pressures in Europe, particularly Germany, as well as the Middle East and Australia.

The potential risks to H2 trading prompted analysts at broker finnCap to take a more prudent approach to their forecasts. They lowered their earnings per share guidance by 5.5% for 2019 and by 7.7% in 2020, having cut revenues estimates by $3 million to $84 million.

Their price target has lowered from 420p to 380p, although they add that Somero remains a strong long-term investment. The shares are trading on a price/earnings (PE) multiple of 9.6x, but this is accompanied by an attractive dividend yield of 7.3%. Somero continues to enjoy a strong balance sheet and positive cash flows, leading to today's 4% rise in interim dividend.

Somero, which began life as a single product company in 1986, employs laser-guided technology to achieve a high level of precision in concrete surface flatness. It has been used in construction projects for organisations including Costco, Wal-Mart, B&Q and IKEA.

Somero CEO Jack Cooney said: "Despite our disappointment with H1 2019 trading, we do not see a fundamental change in our end-markets and maintain a positive outlook for the remainder of 2019 particularly as our customers in the US return to more typical levels of productivity.

"Our confidence is based on our close customer contacts through which we can assess customer workloads, backlogs and business outlook."