Hi Hugo, thank you for the analysis. I got interested as well and decided to dig deeper.
What do you think about their performance in the aftermath of financial crisis? It seems they were hit pretty hard in the slowdown - their EPS was negative for 3-4 years. And they could recover only after 5-6 years. Seems to be a cyclical stock. It's quite dangerous to buy cyclical when things look good (they started looking a bit worse now, but are still fine).
Another point is that they have kind of a "one-shot" product in my opinion. When somebody buys such a machine, he normally does not need a next one for quite some time (maybe never?) Somero constantly needs to find new customers not just to grow, but to keep the current level of earnings/revenues. Just look at the numbers in their presentation (H1 2024) - they show that new customers represented 18% and 43% in Europe and Australia respectively. And even with such a big growth in new customer they still experienced a slowdown/stagnation in both regions.
1.We cannot compare a slowdown in the market with the biggest real estate crisis in decades, if 2008 happens again the stock will fall a lot but I do not think this is probable.
2.The majority of their revenues are from existing clients.
Europe and Australia are smaller markets and therefore new customers represent a lot of revenues, Australia grew significantly YoY.
Hi Hugo, I agree that 2008 will not happen again exactly as it was, but I always keep in mind that some kind of crisis/storm may come at some point - they always do.
But Christopher below made a good point about their debt structure, so maybe they would have fared much better during GFC with their current capital structure.
I have a small position in Somero, it's only small because I don't really like one product companies either. But I also looking into its performance during the GFC and the two main differences I saw back then to now are debt and diversification:
1. On the debt side Somero were using debt to grow during the GFC and so when the GFC hit they were significantly hurt, especially since it was in the construction sector as Hugo said. Today they have a much cleaner balance sheet.
2. Diversification is still a more minor point to the debt, but during the GFC they were just in the US whereas today they are more diversified.
Hi Hugo, thank you for the analysis. I got interested as well and decided to dig deeper.
What do you think about their performance in the aftermath of financial crisis? It seems they were hit pretty hard in the slowdown - their EPS was negative for 3-4 years. And they could recover only after 5-6 years. Seems to be a cyclical stock. It's quite dangerous to buy cyclical when things look good (they started looking a bit worse now, but are still fine).
Another point is that they have kind of a "one-shot" product in my opinion. When somebody buys such a machine, he normally does not need a next one for quite some time (maybe never?) Somero constantly needs to find new customers not just to grow, but to keep the current level of earnings/revenues. Just look at the numbers in their presentation (H1 2024) - they show that new customers represented 18% and 43% in Europe and Australia respectively. And even with such a big growth in new customer they still experienced a slowdown/stagnation in both regions.
What is your take on these points?
1.We cannot compare a slowdown in the market with the biggest real estate crisis in decades, if 2008 happens again the stock will fall a lot but I do not think this is probable.
2.The majority of their revenues are from existing clients.
Europe and Australia are smaller markets and therefore new customers represent a lot of revenues, Australia grew significantly YoY.
Hi Hugo, I agree that 2008 will not happen again exactly as it was, but I always keep in mind that some kind of crisis/storm may come at some point - they always do.
But Christopher below made a good point about their debt structure, so maybe they would have fared much better during GFC with their current capital structure.
I have a small position in Somero, it's only small because I don't really like one product companies either. But I also looking into its performance during the GFC and the two main differences I saw back then to now are debt and diversification:
1. On the debt side Somero were using debt to grow during the GFC and so when the GFC hit they were significantly hurt, especially since it was in the construction sector as Hugo said. Today they have a much cleaner balance sheet.
2. Diversification is still a more minor point to the debt, but during the GFC they were just in the US whereas today they are more diversified.
That's a good point about debt, Christopher, thanks for pointing it out!
Thanks for this excellent analysis Hugo. Do you have any insight into management succession, in view of 77yr old CEO?
I do not know what could happen, if the new CEO considers buybacks instead of dividends the stock could have even more upside.