Australia | Sep 07 2007
By Rudi Filapek-Vandyck
What does Intersuisse analyst Peter Russell know about telco service provider Service Stream (SSM) that the rest of us don’t?
Company management flagged at the recent results release it was seeking to diversify the company away from its traditional telco base into sectors such as non-core servicing for electricity, gas and water utilities and Russell has stated in a research note issued this morning he expects to see at least one announcement to be made in a not too distant future.
The analyst reminds investors the company has just completed a $40m share placement at $2 while adding “ it seems appropriate that SSM arranged a placement at this time”.
Russell is also of the view that investors shouldn’t worry about the dilution due to this placement as Service Stream’s growth should simply out-muscle any negative impact from it. Assuming the recently announced Telstra contract will gain traction over the year ahead and the upcoming transaction that will take the company into non-telco infrastructure pays off handsomely, Intersuisse believes the company should be looking at close to a 40% rise in net profits for FY09.
In the first instance the Telstra contract is expected to be a negative as setting it all up will draw a big chunk from the company’s cash reserves, Russell suggests.
On current Intersuisse estimates, Service Stream should still grow its earnings per share by some 24% in FY08, to be followed by a 32% advance in FY09. The stock is currently trading on an estimated PER of 19.6, but Intersuisse has nevertheless maintained its Buy recommendation.
Out of the ten local equity experts FNArena covers on a daily basis, only Citi currently covers the stock and the broker is equally bullish with a Buy, High Risk rating and a price target of $2.75.
Last time we checked the shares were trading at $2.19, down 1c from yesterday’s close.