Scroll down - latest update is at the bottom.

11-Apr-2024: I reckon that Southern Cross Electrical Engineering (SCEE, SXE.asx) will likely head on up to around $1.40 or higher based on the strong momentum their SP is demonstrating currently.

Mining Services has been an "on-the-nose" sector (unloved) for a couple of years now but that seems to be changing - have a look at this:

That's from the 13th March investor presentation by Macmahon Holdings (MAH) at the recent Euroz Hartleys Conference on Rottnest Island (just off the coast from Perth in WA) (see here: MAH-Investor-Presentation---Euroz-Hartleys-Rottnest-Conference.PDF) where they are highlighting the large variance in valuations attributed by the market to both capital light mining and engineering services companies and to capital intensive mining and engineering services companies, and as well as within those two groups, as they say below the table, the materially higher multiples that the capital light group on the left are trading on compared to the capital intensive group on the right.

On the right, there are mining contractors who do the actual mining (contract miners) like MAH and NWH (NRW Holdings), there are mining equipment suppliers like Austin Engineering (ANG) and Emeco (EHL), and drilling contractors like Perenti (PRN, formerly Ausdrill) and Mitchell Services (MSV). NRW also have an engineering and construction arm, but that's not important for this discussion.

On the left side of that slide we have various capital light contractors, many of whom are essentially labour hire companies who specialise in particular areas, so SXE provide electricians and electrical services, Mader (MAD) provide fitters and mechanics for heavy duty earthmoving equipment like Cat, Komatsu and Liebherr gear in earthmoving and mining, Service Stream (SSM) mostly provide trained telecommunications technicians or people from other professional disciplines, and Monadelphous provide labour hire (my brother has worked for them) and also provide engineering and construction services to the mining, infrastructure, energy and other sectors. There are also engineering and construction firms that mostly derive income from engineering, design and project management (GNG, SRG) and facilities management firms that provide services to keep various facilities and assets operational and maintained like Ventia (VNT) and Downer (DOW). GNG's (GR Engineering's) Upstream PS division also provide similar services to the energy sector. The common thing about this group is that they are all companies that are heavy on people and light on equipment, so "capital light".

By contrast, the group on the right side are reliant on a lot of heavy equipment such as earthmoving gear, mining equipment and drilling rigs.

However, the thing to note is the range of PEs from the more fully priced companies towards the top of the left side list down to the low PE companies on the bottom left and pretty much all of the companies on the right list (the Capital Intensive companies) who are all on single digit PEs.

What they (Macmahon) are clearly suggesting is that the mining and engineering services companies classed as Capital Intensive are CHEAP at this point in time.

And I think they were right.

And the ones on the bottom of the left side were cheap also, particularly GNG, SRG, DOW and SXE, although I have issues with Downer based mostly on their management so won't be holding DOW shares any time soon.

Have a look at the recent share price movement with MAH and SXE:

The charts go up to today's closing price, and I've also highlighted the share prices they were at on 13-Mar-2024, being the day that MAH presented that slide at the Rottnest Island Conference. Could be coincidence, but they've risen nicely in the 4 weeks since then. Not everyone listed on that slide has done that, but those two have.

There were other factors at play clearly, some of which I'll discuss below.

I have held both MAH and SXE previously, both here and in real money portfolios, and I don't currently hold either of them, except here where I added a small SXE position today - which I will probably add to.

Another thing worth noting is that SXE were added to the Aussie All Ords Index on March 18th; MAH were already in it and did not get added to or removed from any index in March.

Latest Announcement from SXE: Data-Centre-and-Resources-awards-over-$70m.PDF [20-March-2024]

Source: (25) SCEE Electrical: Posts | LinkedIn

Latest presentation from SXE: SCEE-(SXE)-Investor-Roadshow-Presentation-March-2024.PDF [18-March-2024]

Both of those (the announcement and the roadshow presentation) would have contributed to SXE's positive SP movement in recent weeks.

Website: https://www.scee.com.au/

SCEE: Leaders in Electrical, Instrumentation, Communications and Maintenance Services

About SXE: https://www.scee.com.au/who-we-are/#about

Investor Page: https://www.scee.com.au/investors/investor-centre/

Past Project examples:

SCEE Group | RUDATA SYD053 DATA CENTRE

SCEE Group | BROOKFIELD PLACE SYDNEY

SCEE Group | WESTERN SYDNEY AIRPORT

SCEE Group | NATIONAL SERVICE AND MAINTENANCE CONTRACT

SCEE Group | ATLASSIAN HQ

SCEE Group | BRISBANE METRO FLASH CHARGING FACILITIES

SCEE Group | EDL AGNEW GOLD MINE RENEWABLE HYBRID POWER STATION

SCEE Group | WESTCONNEX M4 EAST PROJECT

SCEE Group | KEMERTON LITHIUM PROCESSING PLANT

SCEE Group | GUDAI DARRI MINE [Rio Tinto]

SCEE Group | CHEVRON WHEATSTONE LNG

SCEE Group | RAAF BASE TINDAL

SCEE Group | WESTMEAD HOSPITAL CASB

SCEE Group | NORTHLINK STAGE II

SCEE Group | PITT ST METRO

Yeah, hopefully you get the idea. They've been around for a while. They've done a lot in that time. They're a decent company that appears to be getting an overdue positive re-rating by the market currently. And most people have probably never heard of them.

24-Nov-2024: Update:

Marked as stale. Reviewed. They're doing better than I expected. Raising price target to $1.96. Should report well in Feb, might go higher on new contract win announcements between now and then.

I like the way they have diversified away from mining services. That's a real positive if we have a "down" period in 2025 on the back of China weakness flowing through to lower commodity prices feeding into a depressed Australian mining sector.

SXE still have mining sector exposure, but not nearly as much as they did 5 years ago, and that's good, in my opinion. I'm not sure that the market fully understands the evolution of this business and the excellent execution that their management have delivered over the past couple of years, especially the past year.

They've had a positive rerating recently, but I think they can run further.

24-Aug-2025: Update:

This one was marked as stale again - I'm back in SXE here on SM - having bought back in after digesting their results, which I'll share my thoughts on below. I'm not in SXE in real life however due to all of my investable capital being tied up in other (hopefully better) companies, but SXE have reported very well and I think they should get a positive re-rating on the back of their report and outlook - they do not look expensive; But they do look like dependable wealth winners for their investors.

This is another one that I would hold in my SMSF if I had more capital to invest. Actually I wouldn't because my SMSF is currently limited to ASX300 companies and SXE is in the All Ords but not the ASX300 yet - give them a few more years and I reckon they will be - I would instead hold them in my other portfolio outisde my super that holds companies like LYL and GNG (and previously EGL, DUR & SRG), buy that's full of LYL, GNG and GOR right now.

Firstly - SCEE's (SXE's) share price trends well, both up and down, currently in a decent uptrend during this calendar year:

But they're not at the top of that rising channel right now - interestingly they rose +3.1% (+6 cents) on Tuesday (19th) leading into their results release on Wednesday August 20th, then dropped -1.5 cps on the day, another -11 cents on Thursday (-5.56%) another cent on Friday to finish the week down -4.1% (-8 cents) @ $1.86.

I believe they've been sold down on a slightly lower current order book (-4.9% vs pcp) and a slightly lower gross margin and EBIT margins (with a flat NPAT margin) and lower growth guidance for the current FY than for FY25 - still good profit growth, just not the outstanding growth that we got in FY25.

Two points on that: (1) These companies keep adding to their order books as the year progresses, so there's scope for guidance upgrades, which are always a lot nicer than guidance downgrades, and (2) Thorney (TIGA/TOP) is their second largest shareholder (SCEE's founder Frank Tomasi is #1) and Alex Waislitz at Thorney is a fairly unpredictable character and could be selling down - which would certainly be on brand for him - he usually loads up on companies that are going backwards and either reduces exposure or sells out of companies that are poised for good growth or who are continuing to execute well.

And the results last Wednesday were good:

Full year results announcement (6 pages)

Investor presentation - FY25 results (32 pages)

Annual Report to shareholders (94 pages)

Appendix 4E (2 pages)

It's going to be hard to maintain that sort of momentum, and we know that SXE management are conservative, preferring to underpromise and overdeliver, especially their CFO, Chris Douglass who we have had on here with Andrew not too long ago; Chris was also previously SCEE's Interim Managing Director and CEO, currently their CFO, so it's notable that despite some minor margin compression at the Gross Margin and EBIT/EBITDA levels, and a flat NPAT margin of 4% (same as FY24), as well as an order book that is -4.9% lower than it was a year ago, they're still giving guidance for further decent profit (EBITDA) growth this FY:

"The group is anticipating further growth in FY26 with EBITDA in the range of $65m-68m, growing 18 to 24% on FY25 EBITDA. "

So what's to like?

A heap actually.

Firstly there's their inside ownership a.k.a. "skin in the game".

Next, there's their industry positioning - electrical contractors - but no longer just to the mining and energy sectors - now a major player in infrstructure including data centres, hospitals, transport infrastructure, shopping centres, it's a long list.

There's also the fact that they have zero debt, and a nice pile of cash relative to their low market cap:

Next we have a very strong Balance Sheet, growing Earnings that are supporting increasing Dividends (returns to shareholders), and competent and conservative manegement that are aware of the dangers of being too reliant on one or two sectors, so have been busy diversifying into other sectors (from almost entirely mining and energy a few years back), mostly via smart and strategic acquisitions where they never seem to overpay, and they have an excellent track record of gaining immediate benefits from those acquisitions - it's smart growth via M&A rather than growth for the sake of growth - they are building a bigger, better and more resilient company that will be able to withstand downturns in different industries or sectors.

I'll stop there, as there are 32 pages in the Presso in addition to the 6 page announcement, plus another 94 pages in their Annual Report (also released on Wednesday, link below), so hopefully I've given the main broad outline of why I think they're an investable company and currently one of my 20 best investment ideas - just outside my top 14 that I actually hold in real money portfolios - I've been an SXE shareholder IRL before and done well out of them, and I'm sure I will be again. Great company.

Sources: Full year results announcement (6 pages)

Investor presentation - FY25 results (32 pages)

Annual Report to shareholders (94 pages)

Appendix 4E (2 pages)

...with some additions from me (mostly in blue, orange and green).

And I've got some SXE back in my SM portfolio again now - not a ticker code best suited for dyslexics - but otherwise not much there to complain about.

Disclosure: Holding (here).