Service Stream Limited (ASX: SSM) spent the last two years wondering the wilderness but the utility and telecommunications network services contractor may have finally redeemed itself in the eyes of investors.
Management is forecasting earnings before interest, tax, depreciation and amortisation (EBITDA) of about $23.5 million for the year ending June 30 2015, or 41.6% above last year's result. Shares in Service Stream jumped 8% to 27 cents its highest level since March 2013 when the stock fell off a cliff on a profit warning relating to its joint venture with Lend Lease Group (ASX: LLC), called Syntheo.
Syntheo had been awarded a contract by NBN Co. to build the fibre broadband network in a number of regions, but cost blowouts and the decision by NBN Co. to undertake construction work in the Northern Territory itself forced Service Stream to make a big write-down.
Service Stream lost credibility with the market and it has taken that long to rebuild bridges with investors. I estimate that Service Stream is trading on a current year price-earnings (P/E) multiple that's under 10x, leaving it plenty of room to climb if management can sustain the earnings recovery.
What I will be watching closely at its full year result announcement on August 12 is cash flow. Operating cash flow has fallen sharply to $1.7 million at the half year compared with $12.1 million previously, despite an 18% uplift in EBITDA for the six months to end December.
Service Stream is still a high risk endeavour, but it could be worth a small punt around these levels for those with a tolerance for risk. Some recent project wins that are underpinning its return to growth include a metering field services contract with AGL Energy Ltd (ASX: AGL) and wireless network design and construction agreements with Telstra Corporation Ltd (ASX: TLS). If you are looking for a less risky high growth stock to sink your teeth into, sign up for free below to see what the experts at the Motley Fool have uncovered.
