Essential Infrastructure Service Providers

Goldman Sachs initiates coverage on the Australian Essential Infrastructure Services sector, highlighting a structural shift from construction to annuity-style maintenance. They recommend Buy on Service Stream (SSM) and Duratec (DUR) while maintaining a Neutral stance on SRG Global and Ventia.

Key Takeaways

• 1.Initiation of coverage on the Essential Infrastructure Services sector with Buy ratings on Service Stream (SSM) and Duratec (DUR) due to attractive valuation and growth catalysts.
• 2.The sector has transitioned from lumpy, high-risk construction to annuity-style maintenance and operations, de-risking business models and improving cash conversion.
• 3.Industry growth is supported by structural mega-trends: ageing infrastructure, population growth, and a significant surge in Australia's defence spending.

Table of Contents

• Recommendations
• Initiation summary
• Essential Infrastructure Service providers: An overview
• Essential Infrastructure Service providers: Financial comparisons
• Key debate: Record multiples and cycle-high margins. Can this be sustained?
• Our view: Strength to continue, although performance will vary
• Key Topic #1: A fundamentally stronger industry
• Key Topic #2: Ageing infrastructure, population growth, and mega trends provide a structural growth opportunity
• Key Topic #3: Margin sustainability and outlook from here
• Service Stream (SSM.AX): Multi-year revenue visibility, margin upside, val not reflective; initiate at Buy
• Duratec (DUR.AX): Multiple appears rich, but so does the opportunity; initiate at Buy
• SRG Global (SRG.AX): High quality business, but a high quality multiple; initiate at Neutral
• Ventia (VNT.AX): A market leader with structural tailwinds, but valuation appears fair; initiate at Neutral
• Appendix 1: Valuation Framework
• Appendix 2: M&A Framework
• Appendix 3: Comparative companies

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