SRG Global: Building Australia

Small Caps | 10:00 AM

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.