The servicing company for essential networks across Australia delivered a much weaker FY22 result than we expected and failed to give guidance for the year ahead, deferring that until their AGM in October. Weaker earnings have led to a weaker dividend now and we’ve lowered our assumptions for future payouts accordingly. Top line revenue is not the issue, there is demand for SSM services and that led to a beat in terms of annual revenue achieved plus their work in hand is strong, however, it’s costing more to deliver services via higher transport and utility costs and of course labour pressures. Higher interest rates (cost of capital) and bad weather also played a part in this result and this led to lower margins overall, and a profit about 20% below where it could/should have been. The group ended the period with higher gearing than they target so prioritising debt repayment from here will also be a headwind on dividends. The other aspect we simply got wrong is overestimating group margins following the Lend Lease acquisition which is a lower margin business that drags down group margins fairly materially. All in all, a soft update and we now think dividends will remain lower in FY23, around 3cps before increasing materially in FY24. We plan to hold until the October AGM & re-assess.
MM is holding SSM until guidance is provided at the October AGM
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