The Service Stream Limited (ASX: SSM) share price is rising after the essential infrastructure business gave an update.
What’s going on with Service Stream?
Service Stream confirmed its guidance that the second half EBITDA (EBITDA explained) from operations will be in line with the first half result.
It also made some comments about other factors of the business.
External growth opportunities
Service Stream acknowledged an article in the Australian Financial Review that speculated about Service Stream’s potential involvement in a sale process in relation to to the services division of Lendlease Group (ASX: LLC).
Service Stream said it actively considers external growth opportunities from time to time, having regard to alignment with its strategy and the value these opportunities may provide for its shareholders.
The ASX company said it wouldn’t comment on speculation or discuss specific businesses that may be under assessment.
Service Stream share price
The board noted that it can’t control external factors affecting the share price, but believe the fundamentals of the business model remain strong and the company is focused on maintaining its position as a leading essential provider across its chosen markets, whilst investing for growth and diversifying away from telecommunications.
Service Stream said it wants to grow and support its organic business development pipeline, whilst securing additional opportunities across its long-term contract base.
Trading update
In utilities, FY21 is expected to show 10% revenue growth for Comdain thanks to contract wins. It has a good backlog of work going into FY22 and continues to tender on new contract opportunities. It’s expect growth of around 10% in FY22. There is also a positive pipeline of new utility project opportunities.
In telecommunications, FY21 is expected to show a lower contraction driven by the conclusion of NBN construction operations and a step down in activation volumes. Service Stream has re-secured all major telco agreements over multi-year terms during FY21, with telco FY22 earnings to rebase lower in line with these contract renewals. It’s focused on trying to win new opportunities, such as the $4.5 billion NBN network upgrade program.
In terms of COVID-19, key impacts that remain include reduced volume of energy disconnections (and subsequent reconnections) across particular clients, shortage of client supplied materials and minor impacts from lockdowns.
Summary thoughts on Service Stream and the share price
The Service Stream share price is currently up 4% in reaction to this update, though it’s still down around 60% over the last six months because of the NBN troubles. This could be an opportunistic time to buy shares, but it’s hard to know whether earnings can recover quickly or there’s a long journey ahead.
There are other ASX growth shares that aren’t reliant on limited-time major contracts to keep driving profit higher.
