UPDATE: Service Stream Ltd (ASX: SSM) is experiencing a significant surge following an urgent price target upgrade from Ord Minnett. The broker’s latest analysis suggests that the telecommunications and network services provider is poised for a substantial rise, fueled by newly signed contracts with the Australian Department of Defence.
On October 12, 2023, Ord Minnett announced an upgraded price target of $2.57 per share for Service Stream, up from a previous target of $2.35. This upgrade comes after the company secured two Base Services Contracts with the Department of Defence, expected to generate revenue over the next 6 years. The contracts cover 113 Defence sites and training facilities in South Australia and the Northern Territory, with a combined value of approximately $1.6 billion.
This contract not only strengthens Service Stream’s portfolio but also diversifies its earnings mix beyond traditional telecommunications services. As Ord Minnett highlights, the full deployment of these contracts is projected to enhance the company’s FY27 EBITDA forecasts by 8% and EPS forecasts by 11%.
The announcement has sparked interest among investors, pushing Service Stream’s stock up over 47% year-to-date. Following Friday’s closing price of $2.33, the new target indicates a potential upside of 10.3%. Furthermore, Macquarie has also taken note of this development, adjusting its price target from $2.42 to $2.70, suggesting an even more impressive upside of nearly 16%.
This news is critical for stakeholders, as the contracts not only promise substantial revenue but also highlight the operational leverage available to Service Stream through organic growth. The company is well-positioned with a strong balance sheet, allowing it to mobilize new contracts using internal cash flows.
Investors are keenly watching as the implications of these contracts unfold. With the Australian Defence sector experiencing a surge in investment, Service Stream stands to benefit significantly from this trend.
What’s Next? Investors and analysts alike will be closely monitoring the performance of Service Stream as it embarks on fulfilling these lucrative contracts. The market’s reaction to the stock price and further evaluations from brokers will provide insights into the company’s trajectory in the coming months.
Stay tuned for more updates as this story develops.
