SRG Global: Building Australia

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In just about any infrastructure sector one could name, SRG Global is involved through its many recurring maintenance, engineering and construction contracts, and analysts see nothing but solid growth ahead.

-SRG Global delivering solid compounding growth -Recurring revenues and big-name clients -Expansion into new and growing sectors -Further contract wins underscore appeal

By Greg Peel

When Morgans initiated coverage of SRG Global ((SRG)) in May with a Buy rating, the broker was drawn to the company’s track record of delivering strong and consistent earnings growth at an 33% compound annual growth rate from FY21-24 — through a combination of organic sales growth, margin expansion and acquisitions.

With organic growth supplemented by a prudent acquisition strategy from its net cash position, at a forecast 13x FY25 PE, Morgans believed this was not being factored into the share price, and set a $1.80 price target.

Ord Minnett set a price target of $1.41 back in February, with an Accumulate rating on the basis of a perceived fullish valuation.

At the time, the stock was trading at $1.30, on the rise again after drifting lower post SRG’s first half result which, while in line with analysts’ expectation, did not fire up much interest. Most recently, SRG shares traded around the $1.70 mark.

SRG is an Australian diversified infrastructure services company that provides maintenance, industrial services, and engineering and construction services. It employs over 4,300 people and services more than 20 industries.

80% of its earnings are recurring/annuity style and the business is relatively evenly split across the Australian east coast (50%) and west coast (45%), with New Zealand making up the balance (5%). The business is split into two broad segments: Maintenance & Industrial Services (Maintenance) and Engineering & Construction (E&C).

Cyclical Drivers

Bell Potter updated its view on SRG Global in early June, focusing on cyclical drivers and upcoming catalysts.

One of the many pies in which SRG has its fingers is mining, specifically gold mining. Clearly, the gold price has soared since the re-election of you know who.

For the Maintenance division, elevated gold prices are incentivising growth in near-term, Bell Potter noted, through greenfield and brownfield expansions that should ultimately drive demand for SRG’s drill and blast fleet and geotechnical service offering.

At the recently acquired Diona (which was responsible for the bulk of SRG’s first half earnings growth on Ord Minnett’s assessment) the backlog of work in the East Coast Water and Electrical infrastructure markets are currently at record levels and materially exceed the industry’s capacity to deliver.

In Bell Potter’s view, this backlog of work is encouraging for Diona’s short-to-medium term outlook. A large South Australian Water contract awarded in late 2024 should be ramping up over the second half of FY25 to support sequential earnings growth versus the first.

For E&C, non-residential building approvals have demonstrated double-digit year on year growth since December 2024, Bell Potter noted, with significant project approvals in the months of March and April 2025 not seen since mid-2023. This trend is highly encouraging for new E&C contract wins, with contract volume and value to potentially surprise in the next contract update.  

Bell Potter also saw rising sustaining capex intensity across the iron ore majors as a positive for medium-term project deliveries.

At the time, the broker expected SRG to provide a periodic update on recent contract wins and renewals given six months had passed since the last update, retaining a Buy rating and lifting its target to $1.70 from $1.65.

A-Listers All

Late last month SRG did exactly that, announcing it had secured $850m of contracts with blue-chip, repeat clients across A&NZ, spanning the Water, Energy, Oil & Gas, Industrial, Resources, Health, Education, Defence, Transport, Data Centres and Commercial sectors.

Contract wins in FY25 total circa $1.8bn, more than double the circa $780m won in FY24. The company nonetheless made no changes to its FY25 guidance.

So who are these clients?

Across aforementioned multiple pies, SRG secured contracts with Seqwater (Qld), Hunter Water (NSW), Origin Energy ((ORG)), Genesis Energy ((GNE)), Genesis Minerals ((GMD)), BHP Group ((BHP)), Alcoa ((AAI)), Anglo American, South32 ((S32)), Lendlease ((LLC)), the Defence Department (WA), Western Sydney Airport, Sydney Metro, River Torrens Project (SA), and NextDC ((NXT)).

Yes, SRG has infiltrated the data centre sector as well.

In response, Shaw and Partners lifted its target on SRG Global to $1.80 from $1.60 and retained Buy.

In May, Morgans suggested SRG should benefit from a continuation of a recent trend whereby customers are demonstrating a preference towards specialist maintenance providers over generalists. Water infrastructure spend is expected to grow at a CAGR of 7% over the next four years and energy (oil & gas and energy transition) spend growth is expected to be 4.6% over the same period.

SRG’s drill & blast and geotechnical services, which sit within Maintenance, are leveraged to gold production volumes with its key customers, Evolution Mining ((EVN)) and Northern Star Resources ((NST)).  These miners are expected to lift second half volumes by at least 6% on first half, with volumes expected to grow by more than 10% year on year in FY26 and 7% in FY27.

This sub-segment is high margin, noted Morgans, and should therefore have a positive mix effect on SRG’s Maintenance division and group overall. In relation to E&C, SRG is positively exposed to significant infrastructure investment in Australia.

Oxford Economics expects Infrastructure and construction spend in Australia to grow at more than a 3% CAGR over the next six years, with a total of $1.8trn to be spent across FY24-30.

Strong and Stronger

Last week Moelis joined the party, initiating coverage of SRG Global with a Buy rating and $2.00 target.

Moelis cites increased earnings quality with recurring maintenance order book complementing a strong growth history and a focus on critical production services, on top of strong industry tailwinds with an expanding asset base, ageing infrastructure, and continued outsourcing trend for necessary upkeep to maintain asset life, utility, and output production levels.

Execution in new addressable markets including water and utilities infrastructure have contributed to growth, Moelis notes, and the company enjoys robust free cash generation and a solid balance sheet.

SRG offers strong earnings growth, strong margin, and growing share in stable markets, which in Moelis’ view positions the business well to continue its growth trajectory. Management’s “excellent” track record in piloting the business through a strong growth period should be viewed in concert with an opportunistic and disciplined approach to inorganic growth options to support further growth.

Moelis is anticipating faster growth than consensus currently suggests over FY24-27 because of the highly recurring revenue base, improved visibility, and excellent management track record in delivery and execution.

SRG shares closed at $1.69 yesterday. They have been in a firm uptrend since May. In October last year the price was 63c. On current consensus forecasts, which do not include Moelis, EPS is projected to grow from 6.6c in FY24 to 8.8c in FY25 and to 9.9c in FY26. 

The annual dividend is expected to grow from 4.5c in FY24 to 5.4c in FY25 and to 5.9c in FY26.

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