Three key matters stand out for me as to WHY this announcement qualifies as ‘material’ & potential catalysts for the recent price increases..

1.     SCEE has been awarded ‘balance of plant’ contract

2.      Whilst the Collie project will be largely complete in 2025, there is clearly more projects to come over the NEXT 5 years.

3.     Strong tie up with Synergy, WA’s largest energy supplier and closely related to the WA government and their ambitious decarbonisation plans.

It should be noted that this (the Collie project) is the 3rd project by Synergy with the previous two (known as KBESS1 & KBESS2) going to Power Electronics who bill themselves the #1 world leader in manufacture of solar inverters etc. Apparently a company which started in Spain but is now hugely USA based.  So, big feather in the SXE cap to unseat such a large contender. BTW, the Collie project is 10 times the size of the other two projects.

The WA government is investing over $3bn in new wind farms & battery storage systems with the intention of fully closing two coal-based mines – Collie (Oct 2027 retirement date) and Muja C & D (retirement dates to be April 2025 & Oct 2029 respectively). These retirement dates would suggest at least another large battery storage project. Both these coal mines are operated by Synergy.

Conclusion: Good link between WA government – Synergy & SXE = proven expertise to handle big projects which other states might note!

So, expertise on batteries to store renewable energy sources, data centres and an already existing stream of recurring income = KABOOM!

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’

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 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.

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.