Service Stream Limited’s (ASX:SSM) shares surged more than 20% on Thursday after the company released a better than expected financial result for the six months to December 31, 2018.
The result was released after the market closed on Wednesday, accounting for the delayed reaction.
Strong cash position drives higher dividend and share buy-back
The provider of essential network services to the telecommunications, energy and water industries generated strong revenue and earnings growth in the first half.
This enabled it to reward shareholders with a robust fully franked dividend and an on-market share buy-back.
Service Stream is well funded to undertake these initiatives with net cash standing at $63.6 million, up 44% from $44.1 million in the previous corresponding period.
Underlying earnings up 52%
Underlying earnings increased 52% to $32.1 million with a similar incremental gain in net profit.
The net profit of circa $20 million equated to earnings per share of $0.054.
The company paid an interim dividend of $0.03, double the previous corresponding period.
Outperformance on many levels
Casting an eye across consensus forecasts provides an insight into why investors warmed to the result.
Earnings per share for the full year were forecast to be $0.093.
With management forecasting a similar second half performance in the six months to June 30, it would appear that earnings per share will be in the vicinity of $0.11 per share.
With regard to the dividend, analysts had the full year dividend pegged at $0.05.
The company has already delivered 60% of that forecast in the first half.
Outlook
Leigh Mackender, managing director, said: “We expect that the second-half of FY18 will generate profit broadly in-line with the first-half, and we are targeting full-year group EBITDA of approximately $64 million.”
While the company’s shares traded as high as $1.60 (a new 12 month high) early in the day, they appeared to find a level around $1.40 in mid-afternoon trading.
Based on management’s expectations of a like-for-like result in the second half this implies a PE multiple of circa 13.