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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: E_K_S who wrote (55825)

8/10/2015 6:37:57 PM

From: E_K_S

Respond to of 78659

Re: Sterling Construction Co. Inc. (STRL)

I am little disappointed in their Q2 results but it's not totally unexpected.

I did sell 30% of my high priced shares sort of expecting this, It tales awhile for management to turn this around especially expand their margins. My avg cost is now down to $3.12/share.

The main reason I hold on to the remaining shares, is that the CEO is being paid in common shares that vest in 3 years. He has skin in the game and is only through 20% of his vesting period. It takes time to turn a company around.

I guess that is why the CFO resigned now. It was his responsibility to get those projects in on budget and w/o any cost over runs. That is achieved w/ proper contract administration and bidding. According to the CEO, he expects the company to be profitable in the second half of the year.

The CEO stated in his report today:

"...we expect to report a profitable second half driven by improvements in our estimating, project management and contract administration processes...."

They are going to monetize $9.4 mln of assets (an account receivable on a completed Texas project and the sale of some vacant land located in Texas). Those two deal are equivalent to $0.50/share.

"...We expect margins in backlog to increase by the end of this year to 7% or better as we work off lower margin projects and add new projects at higher margins...."

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I will give them 1-2 quarters more to turn around EPS and will be quick on the trigger to exit my position.

BV is a good backstop especially when they are monetizing assets. Even after adjusting for their asset sales, the stock is still selling below stated BV of $5.70/share ($6.18/share - $0.50/share).

STRL has a new CEO and new CFO. The new CEO has made some hard decisions selling some assets. He signed up for a three year deal so I will give him the benefit of the doubt and measure his performance after one year. Specifically I will look at the company's operating performance on the new contract completed in the next two quarterly updates.

Mr market will be not always be so generous. i will hold shares and may peel off some time to time as this sell over stated BV

EKS