Service Stream (SSM) – Attention!

Service Stream offers design, construction, operation, and maintenance services for infrastructure assets across the telecommunications, utilities, transport and defence sectors in Australia. The company was incorporated in 1996 and is headquartered in Melbourne, Australia.

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Service Stream has been awarded two Base Services Contracts with the Australia Department of Defence. Covering South Australia and the Northern Territory, the contracts total $1.6 billion over the initial six-year terms, with up to four years of contract extensions possible. The contracts commence on 1 February 2026 and are accretive to our operating earnings (EBITDA)and EPS forecasts for FY27. Once the contract is fully deployed, and overlaying margin and capital expenditure assumptions, our FY27 EBITDA forecasts are upgraded by 8% and EPS forecasts upgraded by 11%.

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We expect a build-up of operating costs ahead of the contract, and given only a partial revenue contribution for FY26, the earnings impact is likely to be minimal in the current year. Defence is a large and growing segment and rounds out the last major utilities maintenance market which Service Stream had not previously entered. The contract further diversifies the company’s earnings mix away from the traditional skew to telecommunications. Supported by a strong balance sheet, and the capacity to fund new contract mobilisation through internal cash flows, the latest contract highlights the latent operating leverage in Service Stream from organic growth.

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Post the contract win, we upgraded our target price to $2.57 per share from $2.35 and raised our recommendation to Buy from Accumulate.

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