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Somero Enterprises – a special dividend & “remains encouraged” by trading environment, but a buy?

By Steve Moore | Tuesday 6 June 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

US-based manufacturer (why’s it listed on AIM?) of equipment automating the spreading and levelling of concrete, Somero (SOM) has held its AGM today, which has also seen an update on trading.

The update commences that “Somero is pleased with the broad contributions to the company's growth in H1” - noting “strong trading” in Europe and “solid contributions” from the Middle East, Latin America and its ‘Rest of World’ territories.

It is added that start-of-the-year trading in China “has been slow but we have seen signs of improvement and early traction with our new entry-level products”, though core North America first half trading “has been flat compared to the prior year due in part to poor weather across the US that has delayed numerous project starts and ongoing political uncertainty”.

I’d suggest that not encouraging, but the company reckons “we remain encouraged by healthy market fundamentals in the US that are reflected by the high-level of activity and extended project backlogs our customers continue to report”. Hmmm.

It also adds “the board has approved plans to build a $1.3m expansion to the company's Fort Myers headquarters to accommodate planned growth” and, reflecting their “confidence in the medium-term outlook for the company… is pleased to announce that it will be distributing $7.5m in the form of a special dividend representing a special dividend per share of $0.133”. It is concluded “the board will consider future special dividends if the company's net cash position moves materially ahead of the board's view of an appropriate net cash buffer”.

This is a creditable approach, but I note the shares up from sub 120p at the start of 2016 and sub 225p this year to currently not far off 300p. That suggests disappointment will be met harshly here – and, although the company emphasises trading to date “in-line with market expectations for the full year ending 31 December 2017” and that it overall “remains encouraged” by the trading environment, I’m wary of the trading noted in its home market. As such, I currently avoid.

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