We recently researched Ventia Services Group (ASX:VNT) in The Dynamic Investor after the Company reported its interim result. We took a POSITIVE view on the shares as valuation appeal was starting to emerge. In addition, an expected recovery in revenue, coupled with margin expansion provided upside risk to consensus estimates.
With the shares having gained since our report, we consider whether current levels remain an attractive entry opportunity.
About Ventia Services Group
Ventia Services Group is an essential infrastructure services provider in Australia and NZ. The Company operates across a broad range of industry segments. These include defence, social infrastructure, water, electricity and gas, resources, telecommunications and transport.
VNT has +100 clients with a 93% contract renewal rate and an initial contract term of five years. The Company reports results across four segments: i) Defence & Social Infrastructure (D&SI), ii) Infrastructure Services, iii) Telecommunications and iv) Transport.
Key Fundamental Drivers
Revenue Growth Opportunities
Work In Hand (WIH) decreased to $21.1b, from $22.1b at the end of FY25. In context, FY25 WIH of $22.1b was a record level after winning $8.2b of work during FY25. The decrease in WIH since FY25 reflects the Company consuming a substantial amount of the $22.1b backlog through revenue delivery.
WIH is expected to resume its upward trend, as VNT secured seven material contracts worth $1.6b and achieved an exceptional 98% customer renewal rate in 1H26. Further, the Company noted a strong pipeline of opportunities across Defence, Digital Infrastructure, Energy and Water.
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The Company characterised FY26 as a transitional year of contract resets & mobilisations, and expects revenue to improve after bottoming in 1H26. To this end, revenue for FY26 is expected to be flat compared to FY25, as revenue declines in the D&SI segment is expected to offset growth in other segments.
Over the medium term, there are several sectors into which VNT can expand in order to augment revenue growth. These include water, power transmission, data centre connections (water/fibre/power), and transport. Capturing a fair share of these opportunities drives VNT’s confidence in: i) Sustaining long-term above-industry revenue growth of 5-10% and ii) Delivering the targeted 7-10% Net Profit After Tax & Amortisation (NPATA) growth over the medium term.
Increased Margin Target Sustainable
The key highlight of VNT’s results for the six months to 30 June 2026 (1H26) was EBITDA margin expansion, which offset weaker-than-expected revenue growth. Accordingly, the Company Increased its EBITDA margin target to >9.0%, from the prior target range of 8.5-9.0%, and believe the new EBITDA margin target is sustainable.
The increase in the EBITDA margin target is impressive given that margin in 1H26 was negatively impacted by costs associated with de/mobilisation, redundancies and extra fuel costs. The Company is confident that these headwinds/tailwinds will offset one another in aggregate and therefore have limited impact on its new EBITDA margin target of >9.0%.
Low Gearing Level Provides Optionality
The balance sheet remains in a solid position, supported by strong operating cashflow and moderate increases in CAPEX requirements.
Gearing (on a net debt to EBITDA basis) increased to 1.4x as at 30 June 2026, from 1.3x as at 31 December 2025, as a result of a $250m share buyback and higher capital expenditure (CAPEX). In context, gearing remains at the bottom end of the target range of 1-2x and is well below the covenant of <3.25x.
While the Company has significant available liquidity to support growth, capital management appears to be the near-term focus. However, the Company has not ruled out pursuing Merger & Acquisition opportunities. To this end, VNT has upsized its share buyback to $300m (from $250m).
Fundamental View
The reiteration of FY26 underlying NPATA guidance and upgrade to EBITDA margin targets despite revenue pressure in some segments highlights VNT’s defensive growth characteristics. Investor concerns centre on the Company’s reliance on cost savings to underpin margin expansion. However, we note that market attention will likely shift in the near-term to the expected recovery in revenue in FY27. The recovery is likely to be augmented by further contract wins. To this end, contract wins in new segments are a catalyst for the shares.
Valuation support is emerging at current levels. VNT shares are currently trading on a 1-year forward P/E multiple of ~16x. However, while the current multiple is slightly below the average multiple of ~17x over the last two years, it is at a substantial discount to global peers. The shares recently traded as high as 18x and the current multiple is also undemanding in the context of an EPS growth profile of +8.5% over FY25-28 on a CAGR basis.
Charting View
The recent pull back in VNT has seen it find support a the uptrend line and above the April low. VNT should therefore recover from here and current levels are a buying opportunity. Initial stops can be considered just under $5.
Michael Gable is managing director of Fairmont Equities.
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