Latest news with #ServiceStream
Yahoo
06-08-2025
- Business
- Yahoo
Are Investors Undervaluing Service Stream Limited (ASX:SSM) By 37%?
Key Insights Service Stream's estimated fair value is AU$3.21 based on 2 Stage Free Cash Flow to Equity Service Stream is estimated to be 37% undervalued based on current share price of AU$2.01 Our fair value estimate is 53% higher than Service Stream's analyst price target of AU$2.10 Today we will run through one way of estimating the intrinsic value of Service Stream Limited (ASX:SSM) by taking the expected future cash flows and discounting them to today's value. This will be done using the Discounted Cash Flow (DCF) model. Believe it or not, it's not too difficult to follow, as you'll see from our example! We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. The Calculation We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate: 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Levered FCF (A$, Millions) AU$92.2m AU$101.4m AU$102.3m AU$103.9m AU$106.0m AU$108.4m AU$111.2m AU$114.2m AU$117.5m AU$120.9m Growth Rate Estimate Source Analyst x4 Analyst x4 Analyst x1 Est @ 1.53% Est @ 2.00% Est @ 2.33% Est @ 2.57% Est @ 2.73% Est @ 2.84% Est @ 2.92% Present Value (A$, Millions) Discounted @ 7.8% AU$85.5 AU$87.2 AU$81.6 AU$76.9 AU$72.7 AU$69.0 AU$65.6 AU$62.5 AU$59.7 AU$56.9 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = AU$718m We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 3.1%. We discount the terminal cash flows to today's value at a cost of equity of 7.8%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = AU$121m× (1 + 3.1%) ÷ (7.8%– 3.1%) = AU$2.6b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= AU$2.6b÷ ( 1 + 7.8%)10= AU$1.2b The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is AU$2.0b. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of AU$2.0, the company appears quite good value at a 37% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. The Assumptions The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Service Stream as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.8%, which is based on a levered beta of 1.119. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. See our latest analysis for Service Stream SWOT Analysis for Service Stream Strength Earnings growth over the past year exceeded the industry. Currently debt free. Dividends are covered by earnings and cash flows. Weakness Dividend is low compared to the top 25% of dividend payers in the Construction market. Opportunity Annual earnings are forecast to grow for the next 4 years. Trading below our estimate of fair value by more than 20%. Threat Annual earnings are forecast to grow slower than the Australian market. Looking Ahead: Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. Can we work out why the company is trading at a discount to intrinsic value? For Service Stream, we've compiled three further items you should consider: Risks: As an example, we've found 1 warning sign for Service Stream that you need to consider before investing here. Future Earnings: How does SSM's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! PS. Simply Wall St updates its DCF calculation for every Australian stock every day, so if you want to find the intrinsic value of any other stock just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Yahoo
31-03-2025
- Business
- Yahoo
Should You Be Adding Service Stream (ASX:SSM) To Your Watchlist Today?
For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should. If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Service Stream (ASX:SSM). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Service Stream with the means to add long-term value to shareholders. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Service Stream has managed to grow EPS by 32% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming. Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. While we note Service Stream achieved similar EBIT margins to last year, revenue grew by a solid 6.8% to AU$2.4b. That's a real positive. You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart. Check out our latest analysis for Service Stream While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Service Stream? It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. Shareholders will be pleased by the fact that insiders own Service Stream shares worth a considerable sum. Indeed, they hold AU$51m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 4.7% of the company, the value of that investment is enough to show insiders have plenty riding on the venture. You can't deny that Service Stream has grown its earnings per share at a very impressive rate. That's attractive. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. However, before you get too excited we've discovered 2 warning signs for Service Stream that you should be aware of. Although Service Stream certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Australian companies that not only boast of strong growth but have strong insider backing. Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Sign in to access your portfolio
Yahoo
14-03-2025
- Business
- Yahoo
Retail investors account for 57% of Service Stream Limited's (ASX:SSM) ownership, while institutions account for 36%
Service Stream's significant retail investors ownership suggests that the key decisions are influenced by shareholders from the larger public 43% of the business is held by the top 25 shareholders Institutions own 36% of Service Stream A look at the shareholders of Service Stream Limited (ASX:SSM) can tell us which group is most powerful. With 57% stake, retail investors possess the maximum shares in the company. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn). Meanwhile, institutions make up 36% of the company's shareholders. Insiders often own a large chunk of younger, smaller, companies while huge companies tend to have institutions as shareholders. In the chart below, we zoom in on the different ownership groups of Service Stream. See our latest analysis for Service Stream Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices. We can see that Service Stream does have institutional investors; and they hold a good portion of the company's stock. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Service Stream's historic earnings and revenue below, but keep in mind there's always more to the story. We note that hedge funds don't have a meaningful investment in Service Stream. Orbis Investment Management Limited is currently the company's largest shareholder with 6.9% of shares outstanding. With 5.1% and 5.0% of the shares outstanding respectively, Pinnacle Investment Management Group Limited and The Vanguard Group, Inc. are the second and third largest shareholders. Our studies suggest that the top 25 shareholders collectively control less than half of the company's shares, meaning that the company's shares are widely disseminated and there is no dominant shareholder. Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future. While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves. Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group. Shareholders would probably be interested to learn that insiders own shares in Service Stream Limited. In their own names, insiders own AU$52m worth of stock in the AU$1.1b company. This shows at least some alignment. You can click here to see if those insiders have been buying or selling. The general public, who are usually individual investors, hold a substantial 57% stake in Service Stream, suggesting it is a fairly popular stock. This size of ownership gives investors from the general public some collective power. They can and probably do influence decisions on executive compensation, dividend policies and proposed business acquisitions. It's always worth thinking about the different groups who own shares in a company. But to understand Service Stream better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Service Stream . If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future. NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Yahoo
22-02-2025
- Business
- Yahoo
Service Stream (ASX:SSM) Is Due To Pay A Dividend Of A$0.025
Service Stream Limited (ASX:SSM) will pay a dividend of A$0.025 on the 4th of April. Although the dividend is now higher, the yield is only 2.9%, which is below the industry average. See our latest analysis for Service Stream If it is predictable over a long period, even low dividend yields can be attractive. Based on the last payment, Service Stream was quite comfortably earning enough to cover the dividend. This indicates that quite a large proportion of earnings is being invested back into the business. Looking forward, earnings per share is forecast to rise by 37.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 43%, which is in the range that makes us comfortable with the sustainability of the dividend. The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was A$0.0107, compared to the most recent full-year payment of A$0.05. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future. Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Service Stream's earnings per share has fallen at approximately 8.2% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend. Overall, we always like to see the dividend being raised, but we don't think Service Stream will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income. Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Service Stream that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Sign in to access your portfolio
