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#Results
Last edited 4 months ago

26-Feb-2020:  A great set of results from SXE released this morning:

  • Record half year revenue of $230.3m, up 27% on prior corresponding period
  • EBIT up 22% on PCP to $8.4m and NPAT up 24% on PCP to $5.5m
  • Balance sheet remains strong with total cash of $53.3m and no debt
  • Public infrastructure and commercial were largest revenue contributors in half year (decreased reliance on resources/mining industry contracts)
  • Resources revenues to increase following recent significant project wins  
  • On track to exceed FY20 revenue forecast of over $420m
  • Expecting stronger H2 profitability
  • Order book of $440m at 31 December 2019 with over $250m secured for FY21
  • Actively pursuing acquisition opportunities 

Half year results announcement

Investor presentation - HY20 results

Half Yearly Report and Accounts

Appendix 4D - Half year results

 

Disclosure:  I do hold SXE shares.

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#Bull Case
Added 5 months ago

Southern Cross Electrical (ASX: SXE) is an electrical, instrumentation, communication and maintenance services company.

Statistics:

Market Capitalisation: $152,282,906 (@61.5)

Earnings/Share:  5.44 cents

Price/Earnings Ratio: 11.31

NTA/Share: 32 cents

Dividend/Share: AUD 3 cents

Dividend Yield: 4.88%

Commentary:

  • Recently granted a number of projects across a number of industries in December, including approximately $65m of E&I works at the Kemerton lithium processing plant and a number of other new contracts with a total value of over $35m across the commercial, resources, health infrastructure and telecommunications sectors.
  • FY19 revenue of $386.0m up 11%, EBITDA of $23.6m up 13% and NPAT of 12.7m up 51% on prior year, primarily due to growth in public infrastructure activity.
  • Work diversified across different industries
  • Strong commercial and infrastructure  pipeline
  • Cash on hand of $53m and no debt (30 June 19)
  • Price trending up

 

 

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#New Contracts
Added a month ago
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#New Contracts
Added 4 months ago
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#ASX Announcements
Added 5 months ago

Southern Cross Electrical Engineering Limited (ASX: SXE) is up 3.67% at the time of writing on the announcement of securing an $18 million contract with Rio Tinto.

Announcement extract:

Southern Cross Electrical Engineering Limited (ASX: SXE) is pleased to announce that it has been awarded a contract valued at more than $18 million by Rio Tinto for work at their refinery site on the Gove Peninsula in North East Arnhem Land in the Northern Territory.

The works are part of Rio Tinto’s rehabilitation of the site. They include the isolation and re-routing of electrical and hydraulic services to the refinery. Mobilisation is expected to commence in the first quarter of 2020 with completion by March 2021.

Commenting on the award, SCEE Managing Director Graeme Dunn said “We are pleased to secure another significant award in the resources sector, following closely on from our announcements of a number of new resources projects in December 2019.”

Disclosure: I own

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#Bull Case
Last edited 9 months ago

My bull case is summed up well in this broker report from Moelis Australia - which is titled, "SOUTHERN CROSS ELECTRICAL, BUY, Diversified, late stage exposure presents timely buying opportunity".  Their PT (price target) is 88c.  Mine is 77c.  Both are good numbers, although mine is better, IMHO.

They could take 18 months to get there, but there's no rush.  They have no debt, had $56m in cash at Dec 31st (over 40% of their market capitalisation), have succesfully diversified their revenue away from their traditional mining services revenue, including via two strategic aquisitions, have tailwinds, provide exposure to increased infrastructure spending (by governments as well as public/private companies) - as well as increased mining construction capex, they're cheap - the second cheapest in the sector - after SRG Global (ASX: SRG, who I also hold), and there's some smart money on the register.  Thorney (TIGA/TOP) were buying SXE shares in August and again in October and now own 12.83% of SXE.  Westoz (WIC) also own 5.4% of SXE.   The Moelis report is reasonably comprehensive - especially concerning tailwinds and opportunities, as well as risks.  That report is basically my investment thesis.

This company presentation (released on Feb 27th with their half year results) is also useful for getting your head around what this company does, and how they have changed (diversified) their revenue mix and order book over the past 12 months.  Moelis suggests they have been sold down on sector concerns - including the demise of RCR and issues experienced by LLC (Lendlease) - and that makes sense to me.  The company itself looks to be well run, with a good outlook, and is cheap.  They also pay a dividend.  It's a once per year final dividend, but based on the last one, their yield is over 5% fully franked, which is not to be sneezed at.  

 

Disclosure:  I bought some SXE yesterday (9th April). 

Warning:  Dyslexics beware.

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#Company Presentations
Added 4 months ago
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#Industry/competitors
Added 3 weeks ago

11-June-2020:  Decmil Subcontract Update

This highlights the pitfalls of being a subcontractor when the company you have been subcontracted by are rather sub-par (as Decmil - DCG - clearly are).  I note this work was performed a couple of years ago, and that Southern Cross Electrical Engineering (SCEE, ASX: SXE) have a business model that has evolved somewhat from then.  I believe SXE are a better company now - with better risk management.  That's why I hold SXE shares.  I also note that SXE have said, "SCEE remains committed to pursuing its substantive claims and is confident as to its entitlement. SCEE does not believe that this matter will have a material impact on the financial performance of the company for the year ending 30 June 2020 or any subsequent financial years.”

In other words, the eventual outcome of this to SCEE (SXE) is not going to be particularly material.  It was a pretty small contract, and the money owed to them by DCG (according to SXE) is not a particularly large sum in the overall scheme of things.

Decmil's announcement (09-June-2020):  DCG: Adjudication Update

Disclosure:  I hold SXE shares, but do NOT hold DCG shares.

I note that the S&P Index rebalance announcement today mentioned that both SXE and DCG are going to be removed from the All Ords Index on June 22nd (in 10 days' time).

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#New Contracts
Added 2 months ago

05-May-2020:  Contract Awards and Coronavirus Update

Sounds like business as usual mostly for SXE and that they are well positioned to capitalise on opportunities regarding increased infrastructure spending.  Over $50m in net cash (no debt).  Disclosure:  I hold SXE shares.

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#New Contracts
Added 7 months ago

19-Dec-2019:  Contract Awards

Highlights

  • Over $35m of projects won across the SCEE group
  • Awards in the resources, commercial, health and telecommunications and data centre sectors 

Southern Cross Electrical Engineering Limited (“SCEE”) is pleased to announce that it has secured a number of new contracts with a total value of over $35m across the commercial, resources, health infrastructure and telecommunications sectors. 
 
Resources 
 
SCEE has been awarded the following resources projects: 

  • Talison Lithium Australia Pty Ltd has awarded SCEE a contract to install, erect, test and commission the primary and secondary equipment for an electrical infrastructure upgrade at the Greenbushes lithium mine in southern Western Australia. The works involve an electrical load increase from 25MVA to 60MVA installed capacity and are expected to be completed over the first half of 2020. 
  • Energy Resources of Australia Pty Ltd (“ERA”) has awarded SCEE a Master Services Agreement to provide electrical and instrumentation services at the Ranger Mine in Jabiru, Northern Territory. SCEE will provide ongoing support to ERA’s operations and assist with mine closure works for an initial term of two years and ERA has the option for a further two 12-month extensions.  

 
Commercial 
 
SCEE’s East Coast-based subsidiary Heyday has been awarded the following commercial projects: 

  • Shape Australia Pty Ltd has awarded Heyday the electrical fit-out of 14 floors of government office accommodation at 231 Elizabeth Street, Sydney. The new office accommodation will provide 21,600m2 of floor space for use by employees of Transport for NSW, and the Departments of Premier & Cabinet, of Finance, Services & Innovation and of Justice. The building fit-out is being managed by Property New South Wales on behalf of the government agencies. Heyday’s scope of work includes the distribution switchboards, cable support systems, specialist lighting and small power, communication services, security and access control systems and is expected to be completed over the first half of 2020.  
  • In Canberra, Heyday has been awarded a contract by Geocon Constructors (ACT) Pty Ltd on the City – 7 Development Project. The development comprises three buildings encompassing 544 apartments and 10 retail tenancies. The scope of works is for the design and construction of lighting, communication services, security and access control systems and is expected to be completed in early 2021. 
  • Also in the ACT, Heyday has secured a contract from Icon for work on the Parade Project which is part of Icon and JW Land’s mixed-use C5 Development in Barton. The development comprises 242 apartments, a 65-room hotel and eight retail tenancies. Heyday’s scope of work includes lighting, communication services, security and access control systems and is expected to be completed by the end of 2020. 

 
Health infrastructure 
 
SCEE’s subsidiary Datatel has entered into an agreement with Health Support Services in Western Australia for the provision of breakdown repair, planned maintenance and minor works activities and projects as required to the East Metropolitan, North Metropolitan and South Metropolitan Health Services. The agreement is a panel arrangement for an initial period of three years with options to extend the term for up to a further eight years. 
 
Telecommunications and data centres 
 
Heyday has been awarded a further stage of works by J. Hutchinson Pty Ltd at the RUData SYD53 data centre at Eastern Creek in Sydney’s western suburbs. This scope includes the full fit-out of an additional 1,000m2 of data hall space with Heyday’s scope including HV and LV reticulation, switchboards, UPS and generator systems and lighting and small power. The work is expected to be completed in the first half of 2020. 
 
Datatel has secured new and extensions to existing term contracts to perform customer connection works on the NBN, Optus and Telstra networks. 
 
Comment 
 
Commenting on the awards, SCEE Managing Director Graeme Dunn said “I am pleased to be able to announce these new awards which demonstrate SCEE’s capabilities across a broad range of sectors and geographies.” 

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Disclosure:  I hold SXE shares.

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