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Why Service Stream shares will be on watch tomorrow

Phil Harpur

After market close on Wednesday, Service Stream Limited (ASX: SSM) released its financial results for the half-year ended 31 December 2019.

The company recorded significant growth in all key profitability metrics over the prior corresponding period (pcp) of 1H FY19. Adjusted NPAT increased 28% on the pcp to $32.3 million, while adjusted earnings per share (EPS) was up 14% to 7.96 cents.

Group EBITDA from operations was $58.1 million, up 50% on the pcp and up $3.5 million on the preceding half year (+6%). Meanwhile, overall revenue came in at $497.8 million, up 50%.

Service Stream announced an increased interim dividend (fully-franked) of 4.0 cents per share, payable on 19 March 2020.

Segment overview

In the half-year, telecommunications contributed EBITDA of $45.3 million (15.2% margin) on revenue of $297.9 million. Revenue was marginally lower than the pcp by $0.2 million. The company saw increased revenue from higher nbn OMMA activation and service assurance volumes and a favourable technology mix. However, this was offset by reduced revenues from lower Wireless volumes and wind-down of the nbn MIMA & DCMA programs.

EBITDA margin in the telecommunications segment was higher than the pcp by 3.2 percentage points. This was due to the favourable impacts arising from the adoption of AASB 16 Leases, the profitable wind-up of nbn D&C operations and a favourable work mix.

The utilities segment contributed EBITDA of $15.5 million (7.8% margin) on revenue of $199.2 million. Revenue was higher than the pcp by $147.8 million primarily due to the inclusion of revenue from Comdain Infrastructure following its acquisition in January 2019.

Utilities EBITDA margin was lower than the pcp by 2.8 percentage points, again due to the inclusion of lower margin revenue from Comdain Infrastructure. However, this was exacerbated by the impact of one-time bid and JV establishment costs in relation to the successful 10-year Sydney Water tender opportunity.

Management commentary

Managing Director, Leigh Mackender said: “The past six months has seen performance from each of our business units largely in line with expectation, a continued focus on the integration of the recently acquired Comdain Infrastructure business, and a continuation of our structured and disciplined approach to evaluating expansion opportunities, including potential acquisitions.”

“EBITDA from operations for the half-year, whilst aided by the adoption of the new AASB 16 Leases, was another record result for the Group,” he added.

2H FY20 outlook

In respect to the immediate outlook for the business, Leigh Mackender said: “We expect EBITDA from operations for the second half of the year to be in line with that reported for the first-half, delivering another year of solid growth for the Group.”

The post Why Service Stream shares will be on watch tomorrow appeared first on Motley Fool Australia.

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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Service Stream Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020