The company charged with overseeing the National Broadband Network (NBN) rollout, NBN Co, has announced the award of a $334 million contract to Leighton Holdings (ASX: LEI) subsidiary Visionstream to roll out fibre optic broadband in VIC, QLD, and southern NSW.
This covers the initial stage but once extensions are included the potential revenue to Leighton from this contract could reach $1 billion.
Competitive field
Leighton is not the only company to be benefiting from the enormous infrastructure build, with NBN Co sharing the money around amongst multiple Australian and overseas companies. Sytheo, the joint venture between Service Stream (ASX: SSM) and Lend Lease (ASX: LLC) was established to combine their skills and bid for work on the NBN.
Sytheo currently has contracts for rolling out the NBN through WA, SA and NT. Separately, Service Stream was recently awarded a remediation contract from Telstra (ASX: TLS), while Lend Lease has partnered with Telstra to "make ready" over 10,000 buildings across Australia for the arrival of the NBN.
Downer EDI (ASX: DOW) is also a recent beneficiary of an NBN contract. Downer was awarded a $94 million contract to rollout high speed broadband to locations across northern NSW. This win in February followed on closely from a previous contract awarded in December valued at $66 million for connecting residences in NSW, VIC, and the ACT.
Transfield Services (ASX: TSE) is another major contractor to NBN Co, holding a contract for the roll out of the NBN in VIC . This contract was awarded in 2011 and interestingly Transfield doesn't appear to have been overly active or perhaps successful in tenders since then for further services.
Foolish takeaway
Contracting for the most part is a low margin business. While opinions differ vastly regarding the government's NBN policy, generally speaking, governments do get good pricing when they put contracts out for tender. This means the suppliers and contractors to the NBN may be receiving even slimmer margins than normal. Suffice to say, while headlines of big contract wins often sound fantastic, investors need to consider the profits, not revenues that the contractors will earn.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.
