On Tuesday- 16th April 2019 - Thorney Investment Group Australia (TIGA, ASX: TOP) increased their shareholding in SXE from 12.83% to 14.15%.  Westoz Funds Management (WIC) still hold 5.4%, and Colonial First State still hold 8%.  The founder of the company, Frank Tomasi also still holds 20% of the shares on issue.  Between TIGA, WIC, Colonial & Tomasi, that's 47.55% of the shares taken care of, leaving the remaining 52.45% as the free float (i.e. not held by substantial holders).

Disclosure:  While not exactly a substantial holder, I do own shares in Southern Cross Electrical Engineering.  SRG & SXE look remarkably cheap among their peer group - I hold them both.

Update (16-Oct-2020):  The latest substantial shareholder numbers in SXE are:

1. With 18.9%, Frank Tomasi
2. With 18.53%, TIGA/Thorney Investment Group Australia/ASX:TOP
3. With 8.5%, Mitsubishi UFJ Financial Group, Inc.
4. With 6.12%, Perennial Value Management Limited
5. With 5.4%, Westoz Funds Management Pty Ltd

Those 5 holders together now own 57.45% of Southern Cross Electrical Engineering (SCEE, ASX: SXE), so the free float (available shares less substantial shareholders) has now reduced from 52.45% (see above) to 42.55%. 

Over the same 18 month period, SXE's SP (share price) has reduced from around 55c to now being around 45c, so the market capitalisation (market cap) is now around 18% lower as well.

[I still hold SXE shares.  I see significant upside from here, and it shouldn't take longer than a year or two for a serious positive market re-rate of SXE, IMO.  Management are doing an excellent job.  They're just not in a favoured sector at this point, so there is no positivity around the company.  Unloved and unappreciated.  My sort of company really.]

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.” 

-------------------

Disclosure:  I hold SXE shares.

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.

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).

18-Nov-2020:  Strategic Acquisition   plus   Investor Presentation - Acquisition of Trivantage

Highlights

SCEE to acquire Trivantage for an enterprise value of up to $53.5m*:

• Trivantage is a specialised electrical services group with over 50 years operational experience of providing complex electrical solutions across Australia
• Trivantage is primarily a services oriented business characterised by a strong degree of recurring and maintenance work
• Acquisition is a milestone in SCEE’s strategy to enhance its service and maintenance capabilities and grow into adjacent and complementary sectors and new geographies
• Trivantage is budgeted to achieve FY21 revenue of circa $130m and normalised EBIT of $10.8m**, delivering enhanced scale and double digit EPS accretion for FY21F for SCEE on a pro forma basis*** 
• Following the acquisition, the combined SCEE group is expected to generate revenue of circa $500m on a pro forma FY21F basis
• Anticipate strong operational synergies and considerable cross-selling opportunities
• Acquisition consideration structured to ensure ongoing alignment and acquisition success. Initial consideration is payable via $25.0m in cash on completion, and a further $10.0m cash and $5.5m in SCEE shares payable after achievement and confirmation of Trivantage FY21 targets. Further cash components will be payable subject to achieving performance hurdles in FY22 and FY23
• SCEE to maintain a strong balance sheet with flexibility to pursue further growth opportunities
• Trivantage management to remain in business
• Paul Chisholm (significant shareholder and Chairman of Trivantage) to be invited to join SCEE Board

Overview

Southern Cross Electrical Engineering Limited (“SCEE”, ASX:SXE) today announced that it has executed a Share Purchase Agreement to acquire 100% of Trivantage Holdings Pty Ltd (“Trivantage”) from the current shareholders of Trivantage for an enterprise value of up to $53.5m on a debt free basis. Completion is expected to occur in mid-December 2020.

With over 50 years of operational experience, Trivantage is a leading provider of specialised electrical services across a range of sectors. Trivantage is characterised by a large degree of recurring service and maintenance work with a relatively low risk contracting profile. Headquartered in Melbourne, Trivantage has approximately 400 employees Australia-wide with offices in Victoria, Western Australia, Queensland, New South Wales, South Australia and Tasmania.

Notes:

1. (*) Refer Appendix for detailed transaction terms, including nature and timing of acquisition consideration
2. (**) On a full year basis and excludes potential synergies, transaction and integration costs
3. (***) Before synergies, transaction costs, integration costs and amortisation of customer related intangibles

--- click on the first link at the top for the full announcement including the appendix referred to in Note 1 above --- 

--- The second link (at the top) is to a presentation that SXE have released today concerning this acquisition ---

[I hold SXE shares.  I like this acquisition.  Double digit earnings accretive in FY21.  Even more recurring revenue for SCEE (SXE) - there's plenty to like about this.]

There were 4 kickers to today's announcement (from a very conservative board):

(1) Order book increases by $50m over Q3FY22 to $600m (effectively all of FY23 revenue already covered)

(2) Record quarterly activity in Q3

(3) Opportunity to win further work before 30 June

(4) Strong foundation for FY23.

I suspect this means that FY22 EBITDA will be at the top end of their given range @ $33m and following this through, I'd suggest a 6.3c eps with a 4.5c ff dividend. At 64c that's a 10% grossed up income. Great for SMSF's and better to come in FY23.

SCEE today announced that it expects a record half of revenue in H21 FY22 anticipated and furthermore updated their FY22 full-year forecast to revenues of circa $550m, EBITDA of over $34M.

WA border opening up and minimum Covid downtime losses are where management provided the most colour.

I like the inside ownership, conservative management, and easy-to-understand nature of this business (the electronic "picks and shoveles" of the mining/infrastructure sectors).

I hold inside my SMSF so the Fully Franked yield (~10% trailing) is great for super long term wealth creation IMO.

24-Feb-2021:  Half Year Results Announcement   plus   Investor Presentation - Half Year Results   and   Appendix 4D and Interim Financial Report

I hold SCEE (ASX:SXE) shares.  This was a poor H1 report, and they were sold down -3.6% today to 53.5 cps, after being down as low as 49 cps (-11.7%) earlier in the day at the height of the pessimism.  The saving grace was that they have guided for a MUCH stronger second half.  If they achieve that guidance, I would expect a strong positive re-rate.  I guess we'll see in August.  Meanwhile, there are a number of larger contract wins that they could announce between now and then that get start that ball rolling.

Highlights

• Revenue of $135.4m down 27% on prior 6 months impacted by later than anticipated award and execution of major resources projects
• EBITDA of $9.7m down 9%, EBIT of $7.3m down 9% and NPAT of $4.5m down 15% on prior 6 months
• Coronavirus continues to have impacts on productivity
• Acquisition of Trivantage Group completed in period
• Expecting significantly expanded H2 with works carried over from H1 and Trivantage contribution
• Targeting full year revenues of $420m
• Balance sheet remains strong with net cash of $53.3m and no debt
• Record order book of $500m

Outlook

• Order Book
  • The Group continues to win work across its core markets. Significant awards during the half year included the Rio Tinto Gudai-Darri project ($65m) and circa $40m of commercial and datacentre projects in Sydney and Canberra.
  • The Group now has a record order book of $500m, including a $60m contribution from the acquisition of Trivantage, with secured works well balanced across SCEE’s three sectors.
  • There are currently over $700m of submitted tenders with clients pending decision and strong visibility of the Group’s opportunity pipeline.
• Markets
  • Resources
    • Resources activity has rebounded since the low levels of FY20. The pipeline is expected to continue to grow as commodity prices remain high. Significant opportunities are emerging in iron ore, lithium, and renewables developments alongside resources projects.
    • Current ongoing works at the Kemerton Lithium Plant, Rio Tinto Gudai-Darri and Rio Tinto Gove projects will be strong revenue contributors in the second half.
    • We continue to perform minor works projects at various Rio Tinto and BHP sites and at Sino Iron and Boddington Gold.
  • Commercial
    • The Commercial sector remains the largest component of the order book. Wynyard Place and the Ribbon Project are expected to be the largest revenue generators in the sector in the second half of the year.
    • The medium-term outlook for the sector remains strong as developments commence around new infrastructure hubs.
  • Infrastructure
    • Infrastructure will be a less significant contributor in FY21 as the WestConnex, RAAF Tindal and Westmead Hospital projects are largely completed. However, peak activity in the sector is still to come with significant investment sanctioned and electrical work generally later in cycle.
    • Works on the Pitt Street Metro project will ramp up in FY22 and we are bidding further opportunities on Sydney Metro and continue to target other hospital, transport and defence opportunities.
• Full year expectations
  • A significantly expanded second half is expected as work carried over from H1 is delivered and the Trivantage contribution is added to the Group. Full year revenues of $420m are targeted.

Strategy

SCEE primarily sees itself as an electrical and associated services contractor diversified across the resources, commercial and infrastructure sectors.

Our growth strategy falls in two parts:

• To continue to deepen our presence and broaden our geographic diversity in those sectors, noting the strong outlooks for resources and infrastructure; and
• To grow our services, maintenance and recurring earnings offerings to complement our construction capabilities.

We will achieve this through both organic initiatives and by continuing to actively pursue acquisition opportunities.

CEO Comment

Commenting on the results, SCEE’s CEO Graeme Dunn said “the first half of the year has seen us significantly expand the Group’s capabilities and geographical presence through the acquisition of the Trivantage Group. The combination of this acquisition and a record order book means we are confident of delivering a much stronger second half result. Going forward, with a resurgent resources sector and strong infrastructure pipeline, we are well placed to execute our growth strategy.”

--- end of excerpt --- [I hold SXE shares.] --- click on the links at the top for more ---

The chart below is part of the Macromonitor series on Transport Infrastructure Construction, and it is updated each year; this one was updated in January 2021 (last month).  In their presentation (link above) SCEE (SXE) mention that there is an infrastructure construction activity "peak" coming.  What I have noticed is there is always an activity peak in these charts, and it is always about 2 to 3 years ahead of wherever we are today, and there is always a sharp drop off in activity after that (as can be seen on the chart below).  In my experience, every time these Macromonitor charts are updated (which is annually) that peak has moved back another year, which suggests that the drop off is simply because we lack visibility of projects that far into the future; the projects are coming, we just can't see them yet.  That's why the peak does not appear closer on this year's chart than it did on last year's chart, or the year before, or the year before.  It is always 2 to 3 years out into the future, and it may stay that far out for another 5 or 10 years.  That's my experience anyway.  For what it's worth.

Now here’s a boring, though easy-to-understand, company which travels under the radar, despite good management who have used cash wisely in acquiring a cracker of a business (Trivantage). This really moulds out the company into three divisions of roughly equal size (infrastructure, commercial and resources). The FY22 outlook looks rosy with revenue likely to grow by 35% AND $350m of that is already contracted.

Essentially, they are commercial electricians and they have a good geographical spread thought all states. Investors should like them because good value is on offer, and it is debt free with $51m in cash.

At the present SP of 56.5c the P/BV is 0.82 – PE of 10.2 and my preferred value measure of EV/EBIT of just 4.0x. For mine, anything below 8x warrants a good look.

FY21 basic eps was 5.5c up 26.4% and the 4c ff dividend gives a grossed-up return of 10.1%. What’s not to like about this, particularly those drawing down from a SMSF?  

And FY22 will be even better if management deliver on their outlook statement. Tracking their advice through to the key figures I get an FY22 eps of 6.9c with a 5c ff dividend. That’s a forward looking grossed up return of 12.6%!

Looking through the share register you will find significant founder holdings plus investment A grader, Alex Waislitz of Thorney Investments, holds some 17% of the company.

Yes, its small with an EV of just $90m or so, but it is solid and earnings are likely to be reasonably predictable given its spread over three areas.

SCEE is an electrical contractor diversified across 3 sectors - resources, commercial and infrastructure. Its growth strategy is to deepen its presence in these sectors with an emphasis on targeting maintenance & recurring earnings.

 Its recent (Dec 2020) successful acquisition of Trivantage has substantially increased exposure to service & maintenance style work which gives it a growing stream of continuously steady income. All of the above, plus its focus on opportunities in the global decarbonisation arena, will drive future growth.

 It’s a well run company which has transparency in its reporting and no mumbo jumbo, voodoo accounting jargon deigned to ‘smokescreen reality’.

 It’s not going to be a growth star, more a steady Eddie. 1HFY22 results showed good growth  on the top (+86%) and bottom (+48%) lines. And 2H promises even better results. Based on 1H results and the companies reconfirmed outlook, my expectations are that FY22 will see eps around 5.7c with a dividend paid of 4.5 to 5c ff (a gross yield of 12.5% on a SP of 57c). Not too shabby when compared to a boring CBA deposit savings account paying diddly squat.       

 Of course, risk and reward are always associated and here SXE is well situated. It has $49m in cash and no debt. Plus, it has a current order book of $550m which is a full years revenue and this is growing. Assuming the resources sector across the board does not fall out of bed and given its growing bank of predictable maintenance style income, the risks are minimal.   

 Disclosure: I hold in RL for the grossed up dividends which I think/hope will be consistent going forward.

SXE delivered its AGM report today [31/10/22] and it's largely a regurgitation of the entirety of the presentation as delivered for the FY22 results on 31st of August 2022.

 The only adjustments to the presentations between the dates referred to above are to acknowledge the winning of the Atlassian project of $35+m plus and the Brisbane Metro EV charging project of $10+m

 They added one new slide which might indicate a growing thread to make 7^th pillar to the diversity of this business – that of ‘Decarbonisation’ and they are chasing business in the areas of battery, solar and wind projects together with green buildings (Atlassian project win) and electric vehicle charging systems (Brisbane Metro EV infrastructure win). Additionally in this space they are in a perfect position to offer decarbonisation solutions to their resource clients.   

 They have reaffirmed FY23 outlook of EBITDA in the range of $36m to $38m which I have extrapolated through to an FY23 EPS of 6.9c (v 6.1c for FY21) and a ff dividend of 5.5c

 Certainly, worth a consideration @ a SP of 67.5c as the ff dividend will be generate a grossed-up return of 11.6%

 My only concern is their order book which is expected to potentially flatten as they finish a number of WA resource projects in FY23. But they are resourceful and on slide 18 they did state “Atlassian HQ building contract announced in September with further awards anticipated soon’