Service Stream’s Defence Push Gives FY27 Growth a Larger Platform

Higher margins and stronger shareholder returns

Service Stream Limited (ASX:SSM) has used its FY26 presentation to make a broader claim than simply delivering another year of growth: the essential network services provider says the quality of its earnings has improved as margins, cash generation and its contract base strengthened.

Revenue rose 2.3% to $2.475 billion, while EBITDA from operations increased 11.8% to $163.4 million. NPAT-A climbed 18.4% to $81.1 million, and the EBITDA margin expanded by 60 basis points to 6.6%. The utility margin improved by 130 basis points to 5.8%, with a 6.0% exit rate in the second half.

Cash conversion was also substantial, with operating cash flow before interest and tax equivalent to 113.9% of the relevant earnings measure. Net cash increased by $7.1 million to $80.7 million, giving Service Stream a stronger balance sheet alongside an FY26 total dividend of 6.5 cents per share, up 18.2%.

Defence mobilisation moves from contract award to operations

The most consequential strategic development is now operational rather than contractual. Service Stream says its Defence business went live on 1 February 2026 after mobilising more than 1,600 resources and deploying more than 350 vehicles across over 110 sites, with the transition completed within its program timeline and internal budget.

The work is the operational follow-through from the $1.6 billion Defence contract, which covered property and asset services across Defence sites in South Australia and the Northern Territory. Service Stream says the newly established multidisciplinary team is targeting additional project opportunities through Defence procurement programs from January 2027.

The presentation positions the contract as a foundation for expansion into other major asset-management portfolios and broader social infrastructure. That is a stated ambition, not a secured earnings outcome, and the company has not supplied specific FY27 earnings guidance in the material.

Order book blends renewals with new infrastructure work

Service Stream’s total work in hand exceeds $8.2 billion over initial contract terms, with a further $6 billion of extension options. About 85% of the order book is described as annuity-style, long-term and predictable operations and maintenance work, while secured contract awards during the year totalled $3.2 billion.

The contract slate includes renewals with Telstra, Telstra Wireless, Greater Western Water and Energy Queensland, alongside new work for Yarra Valley Water, Millmerran Power Station and intercity fibre deployments involving Telstra and Ausgrid. The Yarra Valley Water and Millmerran wins formed part of the $455 million utility contracts announced earlier in the year.

Service Stream also highlighted the RiE Group bolt-on, which expanded its industrial maintenance capabilities and added exposure to oil and gas, power generation and renewables. The acquisition was previously reported at an initial $6.5 million, with a further performance-linked amount, and is presented here as part of the company’s move into adjacent industrial markets.

FY27 outlook relies on scaling recently mobilised work

Management says the first quarter of FY27 has started solidly and expects a step-change in revenue and earnings growth as operations scale and recently mobilised agreements begin contributing. The company expects a minor second-half bias, consistent with historical seasonality, and says client work programs and expenditure have not been affected by macroeconomic factors associated with global conflicts and unrest.

The outlook remains directional rather than numerical. Its credibility will depend on how quickly Defence operations convert a large mobilisation effort into earnings, whether utility margins hold above the FY26 average and how much of the extension-option value in the order book becomes secured work. The next test is less about the size of the platform than the pace at which its newest contracts mature.