Service Stream Ltd (ASX: SSM) shares are good buying, Macquarie says, after the contractor won a bigger slice of lucrative defence contracts than expected.
The services company secured $1.6 billion worth of contracts to provide property and asset services across 113 defence sites in South Australia and the Northern Territory, with the contract to run for an initial six years, with two possible extensions of up to three years each.
Macquarie analysts said that after the multi-year tendering process, Service Stream was awarded more regions and more revenue than they had expected.
It was a "very positive" contract win, Macquarie said, and they updated their price target for the company from $2.42 to $2.70.
Like its other segments, Service Stream will continue to improve margins over the contract term. Additionally, once mobilised with about 350 staff, Service Stream will be well-placed to secure additional works (e.g. minor capital works), that should drive incremental revenue growth beyond the initial circa-$1.6 billion contract value.
The property and asset services contract starts in February next year. Service Stream said this week they would employ about 350 new staff to deliver the contracts as well as a range of specialist contractors.
"This contract marks an exciting new chapter for Service Stream as the business continues to execute against its strategy, expand service offerings and enter new and growing markets,'' managing director Leigh Mackender said.
