STS: Structural Systems Limited

First entered the stock around 9 months ago and price action since hasn't been going my way.

Structural Systems is an engineering company in mining services, civil and construction.

The HY11 report has noted that they're still incurring some losses on their discontinued (formwork) business. What's more the closure of their formwork business has adversely impacted their concreting business.

In reaction to this, they've decided to scale down their concreting business to stem the losses. This might have been pre-mediated as part of their move away from the less profitable parts of their business. Their mining services (drilling) and civil parts of the business are doing well, especially the former which has now become 50% of their bookorder.

If everything goes as they plan - wrapping up the discontinued formwork business, concrete business stems losses as per forecast provided by management - they will post an EPS of around 23cps for FY12. The number assumes zero growth from the profitable divisions. Provided they hit the numbers, the current share price will appear to be quite looney in retrospect. As always, time will tell.

Having said all this, they're still likely to incur losses from discontinued businesses in the second half of FY11. Hoping to hear in the upcoming annual report that there is no more losses creeping into FY12 as suggested by their latest interview with Boardroom Radio.

STS appears to be on the right path, by cutting loose the weeds and growing their profitable divisions. If they pull it off, this might just become a classic Peter Lynch "turnaround".

Current price: $0.65