Service Stream Shares Jump 15% on AUD 1.6b Defence Contract Win

SSM Stock Surges as Defence Deal Secures Long-Term Growth

Service Stream (ASX: SSM) shares rose 15 percent today after the company announced it has secured a major long-term Base Services Agreement with the Australian Department of Defence. The contract is valued at approximately AUD $1.6 billion over an initial six-year term, with options to extend for up to ten years. Under the agreement, Service Stream will provide property and asset services across 113 Defence sites in South Australia and the Northern Territory, including eight major bases. Operations are scheduled to commence in February 2026.

For investors, this represents a significant milestone. The agreement broadens Service Stream’s revenue base beyond telecommunications and utilities into the defence sector, delivering a stable and long-duration revenue stream underpinned by government expenditure. It also reflects management’s strategy to diversify service offerings, a move that not only supports growth but also reduces concentration risk within the business.

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Service Stream: Delivering Essential Infrastructure Services

Service Stream operates as an essential network services provider, with a core business model built around outsourced operations, maintenance, and asset management for large and complex networks.

Rather than maintaining these functions in-house, asset owners such as Telstra rely on Service Stream to deliver critical support. The company’s telecommunications division covers network design, construction, maintenance, and customer connections. Revenue is generated primarily through long-term service contracts, which are typically structured on a fixed-price or volume-based basis, providing a stable and predictable earnings profile.

Balance Sheet Strength Driving Shareholder Returns

Service Stream maintains a strong balance sheet with no debt and AUD $73 million in cash. This financial position supports shareholder returns, with the company currently offering a 3 percent dividend yield and a 0.5 percent buyback yield, equating to a total shareholder yield of 3.5 percent. The recent reduction in debt from AUD $194 million in 2023 has freed up additional cash that can be directed toward future dividend growth and reinvestment in the business. Service Stream’s payout ratio sits at 30 percent, meaning that for every dollar of profit, 30 cents is returned to shareholders while 70 cents is retained to support growth. 

Service Stream’s Valuation Discounts 59% EBITDA Growth

Analysts expect earnings and revenue to grow at a high single-digit rate over the next three years. At present, the company trades on an EV/EBITDA multiple of 9.1x, falling to 7.1x on FY2026 forecasts, as EBITDA is projected to rise from AUD $100 million to AUD $159 million, a 59 percent increase. This combination of balance sheet strength, earnings growth, and dividend capacity suggests the stock may be undervalued at current levels, particularly given the stability of its business model and the potential for rising shareholder returns.