Can Ventia Continue to Re-Rate?

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This story features DOWNER EDI LIMITED, and other companies.
For more info SHARE ANALYSIS: DOW
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

Developer & contractor Ventia Services has re-rated significantly this year, and recent contract wins support valuation. Is there room for more upside?

• Ventia Services has enjoyed a multiple re-rating in 2025
• Department of Defence contract wins underpin earnings growth 
• Telco contracts offer higher margin work
• UBS initiates coverage with a Buy rating and standout price target

By Greg Peel

In September, the Australian Department of Defence announced the long-awaited awarding of infrastructure contracts to the local Developers & Contractors sector.

Ord Minnett suggested at the time the total value of contracts awarded to three companies, Downer EDI ((DOW)), Service Stream ((SSM)) and Ventia Services ((VNT)), is actually higher than the reported headline $7.4bn due to variable works provisions.

Ventia Services secured contracts worth $2.7bn, including Living and Working Services (LWS) in Tasmania, the Northern Territory and Victoria, and Property and Asset Services (PAS) in Western Australia, Victoria and Tasmania.

Macquarie noted the contracts total $700m annually versus $460m currently, driven by annual indexation and likely higher volumes/spend. Importantly, this broker highlights the announcements confirm no contagion from ACCC proceedings. 

The contracts add to Ventia’s prior National Firefighting Services contract. Operations commence in February 2026.

When Ventia reported its first half FY25 result in August, showing a modest 3% increase in earnings year on year, Morgans noted the company was positive about revenue growth in the second half due to strength from recent contract wins in telecommunications.

However, the broker saw the defence unit as a drag, especially given a belief half of the upcoming $460m per year contract renewals were at risk.

Morgans retained a Hold rating. The September Defence Department announcement has alleviated this risk. Morgans has not since updated.

In the wake of the announcement, Macquarie retained an Outperform rating on Ventia and Canaccord Genuity a Buy. Ord Minnett upgraded to Accumulate from Hold.

Last week UBS initiated coverage with a Buy rating.

Above Market Growth

Ventia is a diversified industrial services provider, specialising in the long-term operation, maintenance and management of critical infrastructure. Ventia’s earnings growth has been driven by key contract wins and renewals and by expanding operating margins through increasing exposure to more specialised, higher value work, UBS notes.

Looking ahead, increased infrastructure investment (Ventia is a late cycle beneficiary) provides a growing market opportunity, which, combined with balance sheet de-leveraging, underpins UBS’ 9% three-year compound annual earnings growth rate forecast, which is around twice that of the ASX200 average.

UBS’ earnings per share growth forecasts are underpinned by increasing Australian infrastructure maintenance demand, a shift to higher margin services (telecommunications) and balance sheet deleveraging, supported by efficient cash conversion.

The broker estimates the company has around $300m in balance sheet capacity at the midpoint of its target leverage range, with the potential to allocate this to further share buybacks, or bolt-on M&A.

UBS’ scenario analysis suggests these initiatives could support 2-4% earnings per share accretion, which combined with solid organic growth provides an attractive earnings per share outlook.

What Price is Right?

Ventia’s PE multiple has re-rated to record highs in 2025, from 13x to a recent peak of circa 17.7x, which UBS believes is underpinned by Ventia’s track record of consistent earnings and cash delivery since listing in 2021, and a general market re-rate.

With local peers Downer EDI and Service Stream trading at similar levels, UBS suggests the key debate from here is what is the right PE multiple for the stock to trade on?

The broker’s analysis sought to gain a better understanding of how Global Industrials stocks with similar return characteristics trade on a PE basis, which suggests a further re-rating to 20x is possible.

In UBS’ view, ongoing earnings per share outperformance, strong cash delivery, and a growing work-in-hand position will be key to catalysing the re-rating.

Standout Target

While retaining its Hold rating in August, Morgans lifted its target for Ventia to $5.45 from $4.90 (ahead of the Defence Department announcement).

Macquarie’s retained Outperform rating came with an unchanged target of $5.55, and Canaccord Genuity retained Buy with an unchanged $5.65 target.

Ord Minnett upgraded to Accumulate, but only increased its target to $5.25 from $5.20. This broker’s target in February, post Ventia’s full year FY24 result, was $4.45.

UBS’ initiation with a Buy rating comes with a target of $6.23.

On Friday, Ventia shares closed trading at $5.72, having entered 2025 at around $3.50.

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