Yes @Rick I think it's really as simple as their sub-headings, so under "Capital Intensive", they say "Large focus on traditional surface mining / heavy mining equipment" and all 6 of those companies fit that description, being reliant on earthmoving machinery or drilling rigs. Some are leasing them from some of the others in that list, but they all are in the business of using or selling or leasing large expensive mobile equipment or parts for that equipment.

Can't explain why they've used the word "Underground" under "Capital Light" because none of those 10 companies are underground specialists (like DVP claim to be for example). I think a better title for the "Capital Light" group would be "NOT owners or operators of traditional surface mining / heavy mining equipment" because MAD are certainly reliant on it, and focused on it, they just do not own it, they instead supply the people who repair and maintain that gear.

Getting back to your point on capital returns (ROC), there is clearly a big difference between companies that go out and buy equipment to enable them to provide services to their clients and those who lease that equipment and then give it back when the contracts end. And there is also a big difference between companies who own and supply that leased equipment and those who lease it, so grouping all of those together on the right doesn't make a lot of sense in those terms. However, I believe the point that MAH were trying to make is that all of the companies on the right looked cheap in PE terms and the one thing that MAH have identified that they all have in common is that their business models all rely on heavy equipment either as operators of it or as manufactuers of it (Austin Engineering make loader buckets, and consumables and parts for graders, dozers, and a lot of other large earthmoving and mining gear) or leasing (supply) of it (Emeco). So perhaps what MAH is saying is that the market hasn't thought this through properly by apparently lumping all of these companies together and regarding them as "capital intensive" (/capital heavy) although IF that's what they are suggesting, they could have done a better job of explaining it.

It appears as though MAH are making the same mistake in assuming those companies all have lower returns on capital because their business models require so much capital to be deployed to enable them to do what they do and make money. I didn't really examine that side of it in too much detail. I just took the slide at face value in terms of the PE ratios, regardless of whether the companies were on the left or right side and noticed that two of the companies that were towards the bottom of each side (SXE and MAH) have had nice little share price rises since then.

Oh and before I forget, it should have been obvious by the past projects I listed there, but for the sake of clarity, SXE do mining services (electrical contracting for miners) but that's certainly not ALL they do. They service a wide variety of clients across infrastructure (particularly transport infrastructure), commercial property, essential services like hospitals, schools, universities etc., the mining sector, the energy sector, retail/consumer staples (see below) and data centres has become a focus of theirs recently (and they are winning work there).

They talk about having locked up a long term framework agreement ("National Services and Maintenance Contract") with a large retail chain (mentioned in my valuation) and I don't know if that is Coles or Woolworths, but they mentioned both of those companies in their H1 FY2023 Presentation:

Source: Investor Presentation H1 FY23 Results - Southern Cross Electrical Engineering Limited (ASX:SXE) - Listcorp.

So, sure they're a mining services company, and that's how the market likely still sees them, for the most part, but they are clearly a lot more than that now.

I did hold this stock for 2 years and enjoyed good dividend and then got bored and sold out for 15% profit. After my sell down, it is going up and up -- like usual thing..

One more thing I will add that SXE is doing few of NextDC project for their Datacenters. Interestingly, NextDC just completed capital raise to expedite Melbourne and Sydney DC development. That's a tailwind for SXE.

@Rick my understanding of capital light v capital heavy has more to do with the use of Cash ops and not ROE.

i think it’s possible to have a capital heavy company earning a decent ROE if it was getting a good margin on the capital item.

So maybe the better way of determining the pecking order is to look at EV/FCF or maybe FCF/NPAT

I’m heavily invested in SXE and have always looked at MAH and thought ‘where’s the cash’ - YoY it all got ploughed back in and usually they borrowed to pay the divvy. That said, their recent performance has been impressive.

Caveat: ‘my understanding’ doesn’t necessarily = ‘correct’

@Bear77 You were right. The price has just hit $1.47. Up over 20% today. Nice work.

Thanks @Arizona - however, to be fair, I only noticed them because MAH highlighted them in their own presentation (as I have discussed in this forum thread) and I could see from their SP graph that someone was buying and that SXE appeared to be getting positively re-rated by the market. So more observation than prediction.

I thought they looked promising, but you can never be sure that something like this is going to happen, or when it's likely to happen.

06-May-2024: Here is what they've said today in their Profit-guidance.PDF update:

6 May 2024

Profit guidance

• SCEE Group anticipates FY25 EBITDA of at least $48m
• Strong structural tailwinds support expectations of further earnings growth in FY26 and beyond

Profit guidance

Southern Cross Electrical Engineering Limited (“SCEE Group”) is pleased to announce that it anticipates FY25 EBITDA of at least $48m. SCEE Group also reaffirms its previous guidance that FY24 profitability will match FY23 EBITDA.

Comment

Commenting on the announcement, SCEE Group Managing Director Graeme Dunn said “We have foreshadowed all year that we are expecting growth in FY25 and beyond. With today’s announcement of the Collie Battery Energy Storage System (“CBESS”) project we are now able to give firmer guidance of our expectations going forwards.

Whilst the CBESS project will have no material impact on the current financial year it will drive significant activity levels in FY25 and into the first half of FY26. However, this is far from our only lever of growth – we are exposed to strong structural tailwinds in the data centre sector, Australian infrastructure particularly at Western Sydney Airport, and to decarbonisation and electrification works to enable Australia’s energy transition.

Our other markets, particularly including resources, commercial buildings, and our supermarket works are in a stable or steady growth environment too, which gives us confidence that this growth in FY25 is sustainable, and we have expectations of further earnings growth in FY26 and beyond.

I further note that, although the CBESS project is the largest initial award by value in SCEE’s history, through a combination of our strong balance sheet and advanced payment mechanisms within the contract we will be able to fund its working capital requirements from our own resources.”

--- ends ---

Promising.

See also: SCEE-awarded-$160m-Collie-battery-project.PDF [also today: 06-May-2024;  the largest initial award by contract value in the group’s history, surpassing the initial value of the Western Sydney International Airport terminal awarded to Heyday in 2021. And as they say above, they will be funding the required working capital from their own resources due to their strong balance sheet and "advanced payment mechanisms", so no CR required - another plus.

See also: https://colliebattery.com.au/

I used to work at the Worsley Alumina overland conveyor "transfer point" (where OLC1 meets OLC2 and the bauxite ore on the overland conveyors is transferred from the first 32Km long conveyor onto the second 26Km conveyor - at a point close to Tallanalla (see top left of that map).

It was majority owned by BHP then, now by South32 (S32). Here (map below) is where those conveyors run - the 32Km conveyor was the longest conveyor in the world for a few years until some billionaire in Texas built one that was a few metres longer.

Image 1 below (see location of image on map above):

Image 2:

Image 3:

They built the refinery so far from the mine because they needed a lot of water, plus coal for power generation, and a rail line down to Bunbury Port for the exporting of the Alumina powder to be smelted overseas. Collie got its name from the collieries (coal mines) in the area, which are all mined out now, and the town has got a lot smaller in population terms than what it once was - they could use something like this battery to give the locals some employment, even if only for a short period (around 1 year for Construction; Operations would likely be contracted to some large company I imagine).

Found a few more shots of Worsley Alumina's bauxite mine near Boddington (WA), overland conveyors and their refinery near Collie (WA).

OLC2 comes in from the left below the lake - on a 45 degree angle and then offloads onto the stacker/reclaimer system that runs the full length of the refinery through the middle of that image above between the refinery and the water - so the conveyor runs most of the time, 24/7, except for breakdowns and maintenance (I was on a maintenance crew, rope splicing, for almost a decade in my early years), and the ore is constantly stacked and reclaimed as needed to feed the refinery. The refinery uses the Bayer system (which relies heavily on caustic soda) to extract the alumina powder from the bauxite ore. Alumina is then smelted (overseas in this case, as Worsley ship all of their alumina overseas) in Aluminium smelters to make aluminium bars and products. Back at the refinery (pictured above), everything that is left after the alumina is extracted from the bauxite ore is pumped out as a slurry into bauxite residue dams (we called them red mud lakes because the ore slurry is reddish-brown and the caustic just makes it redder). Once the dams are full they start pumping into new dams and let the old ones dry out, then once dry enough they raise the walls and fill on top of the dry mud, so they get higher and higher over time. The image above is looking North to North East and behind the refinery (behind the photo) to the West and the South are these massive bauxite residue dams (red mud lakes) which are slowly growing upwards like pyramids. They can be seen from space; from satellite images anyway, and they do contain a lot of caustic soda, more than the company would like to admit, so they are really hoping it doesn't leach down into the Brunswick River which starts reasonably close to the refinery.

Happy not to be working there any more to be honest. It suited the younger me, but not now so much.

@Bear77 Very humble. I enjoy reading your insights. So thank you and keep up the good work please. Cheers

08-Sep-2024: I did highlight the positive momentum in SXE's SP back in April (11-Apr-2024) when they'd just put on 25c in just one month, being +27.77% from 90 cps to $1.15/share - and I jumped onboard at prices ranging from $1.14 to $1.18/share. I got out at higher levels; half at $1.63 and the other half at $1.73/share, in mid-May and late-June respectively, so a decent profit in a short timeframe (between 1 and 2 months). They're now at $1.775, having been up as high as $1.965 in August (last month) and having dropped a little from there, so the overall trend has been up, but the momentum has faded somewhat in the past fortnight.

I just want to explain a little about what I'm about here with that: So, I saw potential and I'd been following the company on and off already for a few years, so I was already comfortable with their management and the capital allocation track record, etc., so they had already ticked a lot of boxes for me, and I then saw an opportunity to buy some shares in a decent company with some tailwinds who had already successfully expanded from their traditional happy hunting ground of mining (so, a mining services company essentially) to many other areas outside of resources including data centres (the most exciting for mine), commercial buildings, defence, hospitals, infrastructure and retail store chains (think Woolworths and Coles, who have both been clients of SXE and at least one them still is).

People should know, especially in rural areas, that qualified electricians are hard to get, and they can charge accordingly, and it's a similar situation in listed electrical contracting companies, where the ones who know their stuff, like SXE, are fairly busy most of the time, so they do indeed have tailwinds, not headwinds. Well, the headwinds would be finding qualified electricians to work for them, but they seem to be managing that OK.

It might be one of the reasons why electricians are so thin on the ground, perhaps many of them have traded in their self-employed tradie role for a comfortable well-paid job working for a company like Southern Cross Electrical (SXE) who will guarantee them a regular minimum paycheck and give them a variety of different work that allows them to expand their experience across various different sectors. And they can go back to self-employment later, whenever they want, but a regular paycheck is a nice incentive to stay on.

Anyway, just spit-balling there... But back to what happened here: Once SXE went from 90 cps to over $1.60 (+77.77%) in 2 months, I figured I'd sell half and lock in the +39% gains I'd made from $1.17 (average) up to $1.63 (in a month) and then when they went up another +6% to $1.73 during the following month, I sold the rest. I figured most of the upside that would be in their report in August was already factored into their SP at that point, and as it turns out, I was wrong, they went on to as high as $1.965 in the week after they reported (on August 21st), but they're back at $1.775 now, so only a little above where I exited, and currently in a minor downtrend.

For their SP to go higher from here, between now and February, when they next release a half year report, they will either need to announce more contract wins above and beyond what the market was expecting in terms of growth (remembering that they are being priced for a lot more growth now than they were back in March when their share price was below 90 cps) OR we need a positive re-rating of the sector, with a rising tide lifting all boats, even the ones that were already sitting pretty high in the water already.

Or they receive a takeover offer - that would also do it. M&A can always move a share price, and often by a lot. But absent any M&A, they may not have a lot of near-term upside from here, is my current view. I like SXE. I like their exposure to data centres in particular. However, SXE are not currently one of my best ideas at this point in time, purely because of their recent really good run-up, and the fact that the momentum has now faded and their SP has been falling - from their year high of $1.965 on August 26th to close at $1.775 on Friday (-9.7% from their recent high), so the momentum is likely to take them either further down or sideways until there's another positive catalyst to drive them up again. IMO.

Good ride; short but good, but I've switched horses now.