Structural Systems just about out of the tunnel
30 August 2011Structural Systems (ASX:STS) today reported FY11 results with further evidence that the company is on the verge of hitting its stride. The bottom line result itself was not of particular surprise with the company posting a NPAT near the top of its guidance two months ago coming in at $4.47m. In reality it probably did a bit better than expected as the company incurred an extra $600K before tax loss in the second half than previous budgeted for their concreting business (-$1.4m vs -$800k).
The big drag on this company in the past couple of years have been the losses to its discontinued formwork business and the losses incurred by the Meridian concreting division. The Eastern Treatment Plant is the final formwork project the company needs to close off. I believe this not to be the size of the previous year's losses ($5m after tax) but instead a fraction of this. The company has also cut and slashed Meridian and have indicated that this division will return to profitability in FY12 from the $6.41m before tax loss the previous year.
ROCK, the mining services division has been the shining light for the company in recent years and this year is no different it posting a 8% increase in revenue to $82.60 and a 62% increase in NPBT to $7.1m. This comes despite impacts of flooding and rain in both QLD and the Pilbara during the beginning for 2011 which appeared to have a major impact on the second half NPBT, as it was much lower than the previous half ($1.5m vs $5.5m). The division is in great shape, again achieving record numbers and with a record order book.
The construction segment's NPBT came in a little higher than what I had projected despite the extra loss incurred from Meridian. Year on year is flat at $4.7m NPBT. Provided they wrap up the problems with the concreting business as expected, more than a doubling of this number in FY12 is not out of the question.
I also note that the company has turned around its operating cashflow from the first half and is now in positive territory.
Looking ahead, the following is a conservative profit guidance for FY12:
- FY12 EPS for continuing operations: 23.1 cps
- FY12 EPS: 20.7 cps (forward P/E of 3.85)
This is based on the following assumptions:
- Meridian concreting business turned around and no longer contributing a loss, as expected by the company.
- 10% decline in NPBT for the construction business overall.
- Mining services to post an NPBT of $11.0m (the flood unaffected 1H FY11 for an entire year). Zero growth assumed.
- The final formwork project incurring an after tax loss of $1.5m
- 30% tax rate
These are very much conservative estimates, if not bordering on the extreme side. I wouldn't be surprised if the company ends up breaking out with 25 cps.
The light at the end of the tunnel is quickly approaching...
STS was up over 7% to $0.77 at today's close.