26-Feb-2020: A great set of results from SXE released this morning:
Disclosure: I do hold SXE shares.
Southern Cross Electrical (ASX: SXE) is an electrical, instrumentation, communication and maintenance services company.
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%
20-May-2020: SXE - Award of Energy Queensland Services Agreement
10-Mar-2020: SCEE awarded Sydney Metro Pitt Street Station
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.
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
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.
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).
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.
19-Dec-2019: Contract Awards
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.
SCEE has been awarded the following resources projects:
SCEE’s East Coast-based subsidiary Heyday has been awarded the following commercial projects:
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.
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.”
Disclosure: I hold SXE shares.