The share price of Service Stream Limited (ASX: SSM) dropped 6% after giving an update to the market.
Service Stream said that it’s essential network service provider, demand for its services have generally remained strong throughout the coronavirus crisis. However, the company warned there are negative impacts. Those impacts largely relate to delivering safe field-based operations. Also, some clients are temporarily pausing some work programs and some individual minor projects have been delayed.
The company is now expecting earnings before interest, tax, depreciation and amortisation (EBITDA) from operations to be $108 million. It would still be a record operating result for the company. This estimate was able to be done after the conclusion of its April numbers. It also has the benefit of a clearer perspective on the likely impacts of work volumes to 30 June 2020.
Service Stream said its balance sheet, cashflow and liquidity remains “very strong”.
What about the Service Stream dividend?
Service Stream did specifically address dividends. The company said, initially referring to its financial strength: “Not only has this underpinned the Group’s ability to effectively deal to COVID-19 headwinds, but it provides the board with confidence as to the Group’s continuing ability to maintain its commitment to dividends to secure expansion opportunities across the utilities and telecommunications markets as they present.”
Is the Service Stream share price a buy?
Service Stream managing director Leigh Mackender commented: “Whilst it is unfortunate that some clients have had to temporarily adjust or delay aspects of their work programs, Service Stream continues to be in a strong position, with a healthy contracted pipeline of ongoing work across a blue chip client base.
“Whilst it is likely that COVID-19 impacts will continue to be felt into at least the early part of FY21, we will be in a better position to discuss the Group’s outlook following the release of our FY20 results.”
The Service Stream share price is lower than it was in early February 2020, but it’s only back to where it was a week ago. I still believe Service Stream is a quality long-term buy with a solid dividend (which was mentioned today). I’d be happy to buy shares today at the lower share price.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Service Stream Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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