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Service Stream (ASX:SSM) share price falls despite NBN agreement

asx share price fall represented by man shrugging in disbelief
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Service Stream Limited (ASX: SSM) shares are falling lower today despite the company announcing a new, multi-year agreement with NBN Co. At the time of writing, the Service Stream share price is down 2.1% to $2.35.

What did Service Stream announce?

This morning, investors seem ambivalent about the company’s long-term contract, sending the Service Stream share price lower.

According to its release, Service Stream has secured a significant contract with nbn under a unified field operations agreement. The contract will see the company provide service activations, operations and maintenance activities to the national broadband network. This will include working with fibre to the node (FTTN), fibre to the premise (FTTP), fibre to the basement (FTTB), fibre to the curb (FTTC), and hybrid fibre coax (HFC).

Terms of the deal

Under the contract, Service Stream and nbn will work together for a period of 4 years. This can be extended on nbn’s behalf for an additional two 2-year options.

The new deal will take over the existing operations and maintenance master agreement (OMMA) that was in place since December 2015. It is anticipated the swap over will be completed around March 2021.

Furthermore, nbn has permitted Service Stream to operate in regional areas across Queensland, South Australia, Northern Territory, and Western Australia. Service Stream noted that additional regions will be allocated at nbn’s discretion.

In the first year, the contract is estimated to generate roughly $70 million of revenue for Service Stream. For the following years, revenue will depend on actual work volumes carried out.

What did management say?

Service Stream managing director Mr Leigh Mackender commented on the milestone achievement, saying:

As a leading provider of operations and maintenance services to the telecommunications industry, we are pleased to secure another long-term maintenance agreement with nbn and to continue providing vital support to its customers.

Following the recent signing of the Unify Networks agreement in August across a similar term, Service Stream will effectively be providing nbn with operations and maintenance support across all mainland states and territories under either the Unify Networks or Services agreements.

Service Stream share price summary

The Service Stream share price is relatively flat over the past 12 months’ trading, offering shareholders meek returns.

The company’s shares reached a 52-week high of $2.85 in January, before falling to a multi-year low of $1.54 in March.

Based on the current Service Stream share price, the company has a market capitalisation of around $970 million and a price-to-earnings (P/E) ratio of 19.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Service Stream Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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