re: Ann: Service Stream awarded NBN Co New Es... From...

re: Ann: Service Stream awarded NBN Co New Es... From Citi

"Another NBN contract win - Service Stream has announced it has secured another circa $65m of revenue from NBN Co for the construction of fibre networks in new residential estates in WA, SA, NT and NSW. The contract is effectively an extension and expansion of the previously announced $35m pa new estates contract with Fujitsu. In total SSM has announced over $500m of NBN Co contract wins (including options) in the past year and more are likely in the near term. Reading between the lines - Beyond the obvious incremental revenue, reading between the lines, we see positive news in the fact that SSM has picked up NSW given that Silcar should have been in the box seat to win the work as it is the current incumbent on the Brownfields construction work in that state. With additional patches for NSW coming to tender shortly, the probability of SSM picking up work there looks to have increased. Visionstream was announced as the winner of the Vic and Qld contracts. Earnings upgraded - Our FY13E EBITDA increases by circa 10% on the back of the win although our FY14E upgrade is smaller with our assumption of additional interest expense and higher depreciation following the contract mobilization. The stock is cheap - We estimate that Service Stream is trading at just 2.9x FY13E EBITDA. On a PE basis, it trades on 4.3x FY13E. The business is not without some structural challenges; however at these multiples we see the potential for M&A activity as increasing as the wave of NBN Co construction work increases. We maintain our Buy - Our price target remains at $0.48 despite the earnings upgrades given the fall in market multiples since our last numbers were published in March. At our $0.48 price target, we estimate SSM would be trading at 4.3x FY13E EV/EBITDA and on a FY13E PE of 6.6x. Given the value on the table, we maintain our Buy/High Risk recommendation."