Service Stream Ltd: A Resilient Player in Australia's Evolving Infrastructure Sector

Service Stream Ltd (ASX:SSM) has emerged as a standout performer in the Australian infrastructure services sector, leveraging its diversified business model and strategic positioning to navigate a complex economic landscape. The company's FY25 earnings report, released on August 20, 2025, underscores its resilience and operational momentum, offering compelling insights for investors considering a strategic entry or position increase.

Financial Metrics: Strong EBITDA and Cash Flow Generation

Service Stream's FY25 results highlight a disciplined approach to profitability and cash flow. Total revenue rose 1.2% to $2.42 billion, with underlying EBITDA surging 13.1% to $146.1 million. This outperformance was driven by the utility division, which saw a 32.5% EBITDA increase and a 100 basis point margin improvement to 4.5%. The transport segment also contributed, with a 12% revenue jump to $245.8 million.

Net profit after tax (NPATA) soared 36.7% to $68.5 million, supported by robust operating cash flow of $148.9 million and a 104% EBITDA-to-OCFBIT conversion rate. The company's net cash position improved to $73.6 million, a $65.7 million increase from FY24, reflecting prudent liquidity management. Dividend growth further reinforced shareholder returns, with a 22% hike to $0.055 per share.

Operational Momentum: Strategic Contract Wins and Margin Expansion

Service Stream's ability to secure new contracts has been a key differentiator. The company added $4.2 billion in new work during FY25, bringing total contract work in hand to $7.6 billion—a 40% year-over-year increase. This pipeline provides visibility for future revenue streams, particularly in utilities and transport, where margins are expected to stabilize or improve.

The utility division, now generating over $1 billion in revenue, is on track to achieve EBITDA margins of 5%-6% in FY26, driven by water operations and infrastructure upgrades. Meanwhile, the transport segment's 7% margin target for FY26, with potential for second-half improvement, signals confidence in government-funded projects.

Challenges in the telecommunications division—where revenue fell 2.9% due to the completion of a major telco project—are offset by margin stability. Management anticipates a minor margin decline in FY26 due to new agreements but expects to maintain an 8% margin overall.

Competitive Positioning: A Leader in a High-Growth Sector

Service Stream's competitive edge lies in its diversified portfolio and ability to secure large-scale contracts. In a sector dominated by players like Visionstream and MTN, Service Stream's 11% employee growth and 9.5% annual earnings growth over five years position it as a top-tier provider. Its expertise in telecommunications, utilities, and transport infrastructure aligns with Australia's $3.32 billion infrastructure services market, which is projected to grow at a 10.75% CAGR through 2030.

Government policy tailwinds further bolster its position. The Northern Australia Action Plan, with $19.8 billion in funding, and the Decarbonising Infrastructure Delivery Policy—mandating emissions assessments for large projects—create demand for sustainable infrastructure services. Service Stream's focus on low-carbon materials and digital tools like BIM and ERP systems positions it to capitalize on these trends.

Market Tailwinds: Policy, Digitalization, and Sustainability

The Australian infrastructure sector is being reshaped by three megatrends:
1. Government Spending: The FY2025-26 budget allocates $519.1 billion in general expenditure, with a focus on transport, housing, and renewable energy.
2. Digital Transformation: Adoption of IaaS and cloud-based infrastructure is accelerating, with the IaaS market projected to grow at 10.75% CAGR to $4.43 billion by 2030.
3. Sustainability Mandates: Policies like New South Wales' Decarbonising Infrastructure Delivery Policy are driving demand for green construction practices.

Service Stream's strategic investments in digital tools and its pipeline of government and private contracts align with these trends, enhancing its long-term growth prospects.

Investment Case: Strategic Entry for Long-Term Gains

For investors, Service Stream presents a compelling case. Its strong EBITDA growth, improving margins, and robust contract pipeline support a valuation that balances risk and reward. The company's focus on utilities and transport—sectors with stable demand and margin potential—reduces exposure to cyclical downturns.

Moreover, the defense contract decision expected by September 2025 and potential strategic acquisitions in annuity-style O&M work could unlock additional value. With a dividend yield of ~2.5% and a forward P/E ratio of ~12x (based on FY25 earnings), the stock appears undervalued relative to its growth trajectory.

Conclusion

Service Stream Ltd's FY25 results demonstrate its ability to thrive in a dynamic sector. By combining operational discipline, strategic contract wins, and alignment with macroeconomic trends, the company is well-positioned to deliver sustainable growth. For investors seeking exposure to Australia's infrastructure boom, a strategic entry or position increase in SSM offers a compelling opportunity to capitalize on long-term gains.