I quite enjoyed the chat today with Chris Douglas, CFO at Southern Cross Electrical Engineering.

I must admit, going in I wasnt that interested -- a people business that serves a variety of cyclical industries, and which has used acquisitions to fuel growth..? Not my typical cup of tea. But Chris made some really good points, and it's clear that per share metrics have been steadily improving over a long period of time.

Anyway, a few notes while it is still fresh:

• The most important quality SXE can deliver to customers is reliability. Cost, is a secondary factor for their clients, who need SXE to come in after huge investments have been made, and for which any delays could be extremely costsly
• Clients include big names like Rio, BHP, Woolies, Coles, Multiplex, etc. with very long standing relationships
• Most of the 2000+ staff are full-time employees on Enterprise Bargaining Agreements (EBAs), well-paid, and looked after. EBAs are negotiated regularly and they seem to charge on a cost+ basis.
• They don’t struggle to find or keep staff — being a reliable employer gives them a big edge, especially with the nationwide shortage of sparkies.
• Labour and material costs have gone up 20–40% post-COVID, but SXE can pass these on because their contracts are priced just before they start.
• About $200m of revenue is recurring — includes long-term maintenance, rollouts for supermarkets, ongoing work for miners, and framework agreements.
• Data centers now make up about $100m in annual revenue — competitive market but growing strongly.
• Other tailwinds include hospital and airport projects, renewables, batteries, and general electrification needs.
• There’s also a growing focus on critical infrastructure and redundancy (e.g., substations), which could drive more work.
• The company has grown by acquiring quality businesses in adjacent areas (comms, security, manufacturing) and keeping their management teams.
• They're careful and selective — only acquire every few years, but have $50m cash available (outside of working capital requirements) and up to $200m firepower if needed.
• Balance sheet is very strong — ~$95m net cash and no debt.
• They maintain a cash buffer for stability and flexibility, but also because they are eyeing off more acquisitions.
• Dividend has grown steadily and won’t be cut unless absolutely necessary.
• Customer concentration is worth considering -- about half of revenue comes from a handful of big players. BUT they are very established, low risk customers.
• Australia’s electrical standards and licensing rules create a natural barrier to overseas competition.
• Long-term shortage of electricians actually plays in their favour, especially since they’re a top-tier employer.
• Final point from Chris: electricity use is only going up, which means more work for electricians — and that’s great for SXE.

Based on FY guidance, the business is on a 5.5x EV/EBITDA (I use that multiple as the large cash balance and no debt is worth accounting for, and the company has provided FY EBITDA guidance) and offer a 4.7% yield, fully franked (6.9% grossed up). Doesnt strike me as that demanding. Actually, it seems quite cheap *if* SCEE can sustain even modest growth.

Of course, it's worth remembering that services business can experience a sudden and significant drop in work, and with a lot of expensive sparkies on the payroll, that can take a knife to profits. Yes, they are diversified in terms of industry exposure and geography, but it's something to be mindful of.

I'm sure I missed a bunch of stuff, but you can watch the full interview on the meetings page.