Hi Guys,
Service Stream’s strong FY26 earnings, the acquisition of RiE Group and healthy demand across telecommunications and utility infrastructure have reinforced our confidence in SSM’s earnings outlook.
- Its journey from exiting the ASX 200 in 2021 to rejoining in 2026 also highlights a frustrating reality of index investing: passive funds are forced to sell stocks after they’ve fallen and buy them back after they’ve rallied – not ideal “value-add.”
MM likes SSM’s transformation and longer-term outlook, but valuation was becoming harder to justify back above $2.50 – its recently announced capital raise at $2.03, largely addresses this concern.
- Retail investors are entitled to a 1-for-4.9 non-renounceable entitlement offer (rights issue), a ~4% discount to Thursdays price.
We see solid value in SSM both at $2.10 and the lower $2.03 (via the SPP).
NB The equity raises funds Service Stream’s $975M acquisition of Programmed (a workforce and maintenance services business) from Japan’s PERSOL Asia Pacific, with the balance funded via expanded debt facilities.
Accenture (NYSE: ACN), is becoming an increasingly important beneficiary of corporate Australia’s push into AI, with Coles, Telstra and now Qantas providing examples of major businesses using its expertise to modernise operations, along with the “Big Four” banks.
- India is ACN largest employee base illustrating much of the company’s “value add” through cheaper staffing.
This US$155bn business makes money by helping large companies and governments improve how they operate, particularly through technology, AI, cloud computing, cybersecurity and outsourcing.
- However, in time AI could end up cannibalising some of its business, and the current rapid AI evolution could be as good as it gets for ACN.
ACN is undoubtedly a quality business with revenue and EPS kicking nicely in recent years. Looking out for the next year, the demand drivers for what it does look good, but it gets harder to forecast from there, leaving us neutral ACN at this stage, after a strong run.
