Service Stream (ASX:SSM) Is Up 13.2% After Securing A$1.6 Billion Defence Contract

• Service Stream announced it has secured a long-term base services contract with the Australian Department of Defence valued at approximately A$1.6 billion, covering 113 defence sites and training facilities in South Australia and the Northern Territory for an initial six years with options to extend to ten years.
• This agreement marks a significant move into defence for Service Stream, broadening its operations and providing a stable, government-backed revenue stream while supporting the addition of about 350 new employees.
• We'll explore how the A$1.6 billion Defence contract enhances Service Stream's investment narrative by diversifying revenue and sector exposure.

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Service Stream Investment Narrative Recap

To be a shareholder in Service Stream, you need to believe in the company’s ability to steadily grow its recurring revenue, diversify across key infrastructure sectors, and convert forward work-in-hand into sustainable earnings. The recently won A$1.6 billion base services contract with the Australian Department of Defence significantly lifts short-term revenue visibility and is now the most important catalyst, reinforcing the forward order book and reducing immediate concentration risk.

Among Service Stream’s latest announcements, the recent series of fully franked dividend increases stands out. These payouts, including the August and February dividend declarations, underscore the management's confidence in both recent earnings growth and the company’s cash generation, aligning with renewed investor attention following the Defence contract win.

By contrast, investors should be aware that a substantial portion of Service Stream’s revenue still depends on ongoing government expenditure and that if public sector spending contracts, the company could find itself...

Read the full narrative on Service Stream (it's free!)

Service Stream's narrative projects A$2.7 billion in revenue and A$75.5 million in earnings by 2028. This requires 5.6% yearly revenue growth and a A$16.3 million earnings increase from the current earnings of A$59.2 million.

Uncover how Service Stream's forecasts yield a A$2.33 fair value, in line with its current price.

Exploring Other Perspectives

Simply Wall St Community members estimate Service Stream’s fair value between A$2.19 and A$3.67 from three different analyses. Amid this diversity, the Defence contract’s potential to balance revenue concentration could influence longer-term confidence and order book resilience, explore several alternative viewpoints before forming your own.

Explore 3 other fair value estimates on Service Stream - why the stock might be worth 5% less than the current price!

Build Your Own Service Stream Narrative

Disagree with existing narratives? Create your own in under 3 minutes - extraordinary investment returns rarely come from following the herd.

• A great starting point for your Service Stream research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.
• Our free Service Stream research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate Service Stream's overall financial health at a glance.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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