A solid market update from STS I believe and some encouraging...

A solid market update from STS I believe and some encouraging signs hidden in the update.

* The full year forecast indicates an improvement over the 1H results at the NPAT level (2.1m vs 2.4m including discountined losses, and 4.4m vs 5.1m excluding discontinued losses) in spite of difficult trading conditions in the third quarter.

* The full year dividend is to be confirmed, however at a conservative estimate of 2.5cps this results in a full year dividend of 4cps (a yield of approx 6% at the current share price).

* Work on hand as at June 2011 has increased 13% from December 2011 (185 million vs 164 million). This is getting close to the levels seen when the share price was over $3.

* The improved performance above is in spite of an increase in the tax expense of 3.3 million due to reduced tax benefits from R&D.

* Excluding discountinued losses, NPAT would be been 9 - 9.5 million for the full year. Based on issues shares of 63.8 million this represents a PE ratio of 5.

Still concerning losses from discontinued operations increasing (a total loss of 5 million for the year indicates a further 2H loss of 2.7 million compared to the 1H loss of 2.3 million). Pleased the Directors provided clarity it is now only one project which is ongoing and would therefore expect this amount to decrease / cease in the near future.

I believe STS is still trading at a heavily discounted price and if the improved performance can continue into 2012 and the discontinued losses cease, a significant rerating could occur in the near future.