Tomorrow's forecast, clouds clearing

Just some quick comments on Structural Systems' (ASX:STS) half yearly results released Wednesday 29th February.

• The result was solid with the company posting a NPAT of $4.87m (7.62cps), coming at the top of the guidance provided during the AGM in November
• Revenues strong, increasing by 35% over the previous corresponding period (pcp), interim dividend up 33% to 2.0 cps.
• Mining services division ROCK Australia appears to be doing well. Although profits declined 22% pcp, its the year-on-year result is expected to be higher than last year.
• Concreting business back to profitability as expected. Middle East of declining importance but still profitable.
• Increased capex spend this half of $10.35m, most of it going into new drill rigs for ROCK.
• The company, as stated during the AGM, is no longer reporting on the losses incurred by the Eastern Treatment Plant project. This does make it difficult to measure improvements of the continuing business.
• The company has improved nevertheless with a 12% improvement in NPAT over last year's "continuing operations" result.

The biggest positive was the significant increase in revenue across the company although this wasn't proportionally translated down to the bottom line. Currently, the company is tracking at my pessimistic FY12 forecast of NPAT $10m or 15.7cps. Judging by the positive remarks made on all the divisions within the company, I feel the lack of a higher NPAT may be due to the continuation of significant losses ($1m+ NPAT per half) on the Eastern Treatment Plant project. Without commentary from management, we may never know. The project is due to be completed by the end of CY12, so hopefully it's wrapped up quickly within the next two halves and further profits can start shining through.

Cashflow statement is still not the prettiest, partly due to increased investment in equipment, and something that one needs to keep an eye on. Management are again tight lipped on an outlook statement other than expecting to deliver "an improved result for the full year" - which doesn't disclose much at all.

The things going for this company outlined in previous posts still exist today. It's a turnaround story, with the impacts of past mistakes slowly eroding and with the increasingly important mining services division coming to the fore, the future remains bright. Having an estimated FY12 P/E of 5.5, a significant margin of safety is currently present.

STS last traded at $0.875 (recently ex-div 2c fully franked)