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Service Stream Shares Jump 15% on $1.6B Defence Contract Win
Service Stream (ASX: SSM) shares surged more than 15% after the company announced a landmark AUD 1.6 billion Defence Base Services Agreement with the Australian Department of Defence. The initial term of the contract spans six years, with options to extend for up to 10 years.
Under the agreement, Service Stream will provide property and asset services across 113 Defence sites in South Australia and the Northern Territory, including eight major bases. Operations are scheduled to commence in February 2026.
A Strategic Shift into Defence Sector
This deal represents a turning point for Service Stream, traditionally known for its presence in telecommunications and utilities. By entering the defence sector, the company secures a stable, long-term revenue stream backed by government spending.
The move also supports management’s diversification strategy, helping reduce concentration risk and strengthening its overall business model.
Service Stream’s Core Business Model
Service Stream is one of Australia’s leading network services providers, delivering outsourced operations, maintenance, and asset management for large-scale infrastructure networks.
Key areas include:
Telecommunications: Network design, construction, maintenance, and customer connections.
Utilities & Infrastructure: Providing critical support across energy and water networks.
Revenue is largely driven by long-term service contracts, often structured on fixed-price or volume-based terms, ensuring predictable earnings.
Strong Balance Sheet and Shareholder Value
The company boasts a robust balance sheet, with:
No debt
AUD $73 million in cash
3% dividend yield + 0.5% buyback yield (3.5% total shareholder yield)
Importantly, Service Stream’s payout ratio of 30% means the majority of profits are reinvested for future growth, while still rewarding shareholders.
Growth and Valuation Outlook
Analysts expect Service Stream to deliver strong financial growth in the coming years:
EBITDA forecast: AUD $100M → AUD $159M (59% growth by FY2026)
EV/EBITDA multiple: 9.1x currently, dropping to 7.1x on FY2026 forecasts
With growth momentum, a clean balance sheet, and increasing exposure to government-backed defence contracts, many investors see the stock as undervalued at current levels.
Investor Takeaway
The AUD 1.6B Defence contract marks a milestone in Service Stream’s evolution, expanding beyond telecom and utilities into defence infrastructure. The combination of a strong financial position, dividend potential, and projected earnings growth provides a solid foundation for long-term shareholder returns.
For investors, the stock’s re-rating potential lies in management’s ability to execute this contract effectively while continuing to scale across multiple infrastructure sectors.
Disclaimer
This article is for informational purposes only and does not constitute financial advice. Market investments carry risk. Please conduct your own research or consult a licensed advisor before making any investment decisions.