Service Stream secures two-year service contract extension with Vodafone

Vodafone Hutchison Australia awards a two-year contract extension to Service Stream Limited (ASX: SSM) with respect to the wireless design and construction services that it receives from Service Stream. The news sent the stock price to surge by 1.121% to trade at $2.255 on 13 March 2019 (12:33 PM AEST).

Leading essential network services company, Service Stream Limited told that the contract was most recently re-signed in March 2017 for the initial term of two years along with the two-year term of extension at Vodafone’s election.

Service Stream’s Managing Director, Leigh Mackender, stated: “The extension of the existing wireless design and construction agreement for the term of two years has further strengthened the Service Stream’s long-term relation with Vodafone for what has a current record of over 15 years.”

Under the additional term of the contract, Service Stream would continue as a national provider of services to Vodafone associated with the design and construction of both existing as well as new wireless infrastructure across Australia including 5G technologies.

The agreement is estimated to generate a revenue of $40 million over a period of two years. Since the agreement does not guarantee any volume, Service Stream calculated this estimated value of revenue on the basis of historical trends.

Mr Mackender further stated that the company is looking forward to continuing to work closely together with Vodafone in support of its infrastructure programs across the country at a time where demand for wireless telecommunication infrastructure (including new 5G technologies) continues to increase.

The company recently announced the top-line growth of 18% for the half year ended 31 December 2018. This translates the 1HFY19 revenue of $348.0 million delivering EBITDA from Operations of $38.6 million and a margin of 11.1%. The statutory Net Profit After Tax (NPAT) of the company grew 21% to $24.1 million for the six months ended 31 December 2018, compared to 1HFY18.

The management advised that these results underscore another record six-month profit and the eleventh consecutive half-year increase in each of EBITDA and NPAT measures.

On the segmental front, Fixed Communications revenue increased $22.8 million compared to the previous corresponding period, driven by an increased NBN OMMA activation market share, a more favourable technology mix and increased NBN minor project volumes among other factors. Network Construction grew by $29.7 million to $128.4 million due to a significant increase in the volume of construction activity under the NBN DCMA contract, whereas, Energy & Water contributed EBITDA of $5.9 million on revenue of $56.3 million, up by $1.7 million on pcp.

The Board declared the interim dividend of 3.5 cents per share, fully-franked, payable on 21 March 2019 with the record date of 7 March 2019. Adjusted EPS of 6.97 cents on NPATA of $25.1 million.

Operating cash flows were $17.9 million; however, the Group’s net cash decreased marginally by $3.7 million over the half-year to $69.5 million as at 31 December 2018.

SSM is currently trading at a price to earnings multiple of 17.810x with a market capitalisation of $895.13 million as at 13 March 2019.


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