A significant part of SSM's recent turnaround in profitability is linked to work with the NBN. More likely than not profits will grow as the NBN roll-out ramps out. Question will be what they do when the work finishes - reminds me what happened with some mining services companies recently.
It makes sense if you have to undertake work on a large contract which is ramping up very quickly (and is largely one-off in nature) to do it with sub-contractors so that when the work drops off (which it inevitably will) you don't have an issue with paying out redundancies to right-size your employee base.
That being said there is a risk that you could lose work (how much who knows) to your subcontractors who already project manage and physically undertake project work directly for the NBN. If you think about it critically - what value does SSM bring to NBN if SSM's subcontractors are able to project manage and physically undertake works that SSM is project managing (i.e. if the subcontractor did the work for NBN they make SSM's role superfluous)? Seems to me there could be potential benefits in undercutting SSM's project management margin and do the work themselves.
One could argue that there are unique capabilities in project management that SSM brings to bear that the sub-contractors don't. This is possible - but couldn't the subcontractors get a good handle and what these are when they undertake the work and simply replicate (or devise product/service offerings to NBN which SSM wouldn't have thought of because they don't necessarily have boots on the ground)?
Food for thought.
SSM Price at posting:
48.0¢ Sentiment: None Disclosure: Not Held
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