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Why the Service Stream share price jumped 9% higher today

The Service Stream Limited (ASX: SSM) share price has been a strong performer on Thursday.

At the time of writing the essential network services provider’s shares are up 9% to $2.66.

Why is the Service Stream share price storming higher?

Investors have been buying Service Stream’s shares after it revealed the award of a major new contract.

According to the release, a consortium that Service Stream is part of has won a ten-year contract with Sydney Water Corporation.

The consortium, which will now take the form of an unincorporated joint venture, comprises its Comdain Infrastructure business, engineering company John Holland, Lendlease Group (ASX: LLC), and WSP Australia.

What is the contract?

Sydney Water has appointed the consortium as the Regional Delivery Contractor for one of its three network regions under its new Partnering for Success contracting program.

Under this program, it will provide Sydney Water with a “TOTEX” asset management service covering the design, construction, maintenance, and facility management of all treatment and network assets in its Southern Region.

The contract commences with a six-month mobilisation period starting in January 2020. This will be followed by two five-year service delivery terms with a performance review at the end of the first five years.

Based on forecasts provided by Sydney Water, management estimates that the revenue from service delivery is expected to be in the order of $200 million per annum for the consortium.

As its Comdain Infrastructure business has a 30% share in the joint venture, this equates to annual revenue of $60 million for Service Stream.

Service Stream Managing Director, Leigh Mackender, believes the appointment “reflects the strong capability and prior track record that each of the senior joint venture partners has in delivering positive outcomes for Sydney Water and its customers over the years.”

“The Board and I are delighted that the capability and performance of our recently acquired Comdain Infrastructure business has been recognised by Sydney Water with this significant contract award. We look forward to working with Sydney Water, in concert with our D4C colleagues, in building what we expect will be a mutually rewarding relationship for many years to come,” he concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Service Stream Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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