Downer EDI Limited (ASX: DOW) has secured a substantial $3.05 billion contract to deliver base and estate services to the Australian Department of Defence. This lucrative deal, announced on Thursday, marks a significant expansion for Downer, potentially extending its operations until 2032. Meanwhile, Service Stream Limited (ASX: SSM) has also celebrated a major win under the same bidding process, sending its shares soaring with double-digit gains.
The new property and asset services (PAS) contract awarded to Downer is set to commence in February next year. Initially, the contract will run until 2032, with two extension options that could extend the duration to a decade. This contract represents the next generation of Defence’s base and estate services, significantly increasing Downer’s geographical footprint to include the combined New South Wales and Australian Capital Territory region, as well as Queensland.
Expansion of Services and Geographical Footprint
Under the terms of the new contract, Downer will be responsible for a wide range of services. These include base and estate facilities maintenance operations, aerodrome operations, land management, and training area and range management. The integration services will cover two of Defence’s largest regions, marking a substantial increase from Downer’s current estate maintenance and operations services contract.
According to a statement released by Downer to the ASX, the PAS contract is a pivotal step in expanding its service offerings and geographical reach. This move is expected to bolster Downer’s position as a leading provider of integrated services to the Australian Defence Force.
Service Stream’s Significant Contract Win
In parallel, Service Stream Limited has secured a $1.6 billion contract to provide property and asset services across 113 Defence sites in South Australia and the Northern Territory. This contract encompasses estate upkeep, land management, aerodrome operations, and training area and range management services.
The announcement has had a positive impact on Service Stream’s stock, which surged by 13% to trade at $2.26 on Thursday. This reflects investor confidence in the company’s ability to deliver on the contract’s requirements and its potential for future growth.
Market Reactions and Forecasts
Macquarie analysts have projected a 12-month total shareholder return of 14% for Downer EDI and 26% for Service Stream. These forecasts indicate strong market optimism regarding the financial performance of both companies following their contract wins.
“Service Stream shares piled on 13% to be trading at $2.26 on Thursday, while Downer stock was up 1.2% at $7.”
Implications and Future Prospects
The awarding of these contracts is a testament to the strategic importance of the Defence sector in Australia’s economy. It highlights the government’s commitment to enhancing the operational efficiency and infrastructure of its Defence facilities.
For Downer and Service Stream, these contracts not only represent immediate financial gains but also position both companies for future opportunities within the Defence sector. The scale and scope of these contracts could serve as a springboard for further expansion and diversification of services.
As the contracts unfold, stakeholders will be keenly observing the execution and delivery of services. The successful implementation of these contracts could pave the way for additional tenders and partnerships, further solidifying the companies’ roles in supporting Australia’s Defence infrastructure.
In conclusion, the recent contract awards to Downer EDI and Service Stream underscore the dynamic nature of the Defence sector and its potential to drive significant business growth. As both companies embark on these extensive projects, the market will be watching closely to gauge their impact on the broader industry landscape.
