What is the stock?
Service Stream
How long have you held the stock?
About 6 months
What do you like about it?
We believe that Service Stream offer direct and easy to understand leverage to the on-the-ground deployment of the NBN. The NBN is set to ramp up deployment in the upcoming year (essentially set to double) and the business is well placed to help with this process. The business also recently bought a high end industrial safety business called TechSafe. We believe that Service Stream can help this business by introducing TechSafe to new customers that might already deal with Service Stream. Service Stream also works in energy and water and we believe that this business offers steady growth. Much has been said about smart meters – but we believe that this basic improvement to meters in now starting to crystalize in deployment (and use of the data) into the households of Australia.
We also believe that the imperative to rollout the NBN in an orderly manner is important for the federal Government and an election is coming along perhaps next year.
The business also retains cash on the balance sheet which provides useful financial strength when negotiating for new business and also enables the business to acquire bolt-ons quickly and relatively easily. The business is also aware of the need to convert invoices into cold hard cash and we like this aspect of the business.
How is it better than its competitors?
- The business is Australian owned and operated and listed.
- The businesses that it’s in are the core of the entire operation.
- The business has access to (and relationships with) a highly skilled work force that is flexible and can be scaled up and down.
- Service Stream has been in the business for many years and has built up skill and experience and has learnt from that experience.
- The business is not a “division of” a larger business.
- Service Stream has cash on the balance sheet and a reasonably conservative financial profile which is appealing and helps Service Stream win further work.
- The business is not particularly capital intensive and rides technological change without being a victim of it.
What do you like about its management?
Simple understandable strategy. Committed to reliable and consistent service delivery. Not prepared to lose money on contracts and is very clear about the need to make an economic return on all jobs.
What is your target price?
We see value at current levels.
At what point would you sell it?
If this business starts to trade at a material PE premium to the ASX small ordinary industrial stocks after adjusting for any surplus cash that it may have.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
It has been a modest positive for our clients in our fund at present.
Source: ASX
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