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.
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:
We will achieve this through both organic initiatives and by continuing to actively pursue acquisition opportunities.
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.
18-Feb-2021: New Contract Awards
Southern Cross Electrical Engineering Limited (“SCEE”, ASX:SXE) is pleased to announce its East Coast-based subsidiary Heyday has been awarded a range of projects totaling $40m as follows.
Heyday has been awarded the following contracts with a combined value of over $15m:
In Sydney, the following datacentre projects have been secured by Heyday with a combined value of circa $25m:
Commenting on the above, SCEE Managing Director Graeme Dunn said “This range of work once again demonstrates the strong position Heyday holds in these sectors in Sydney and Canberra.
It is particularly pleasing that we are now in a position to complete the electrical works on the prestigious Ribbon project on which we had so successfully performed at an earlier stage.”
--- ends --- [I hold SXE shares.]
23-Nov-2020: SCEE awarded work at Rio Tinto Gudai-Darri
Southern Cross Electrical Engineering Limited (“SCEE”) is pleased to announce that it has been awarded a contract valued at over $65 million by Rio Tinto for work at their new Gudai-Darri (formerly known as Koodaideri) iron ore mine located in the Pilbara region of Western Australia.
SCEE will perform the plant electrical and instrumentation works at the mine as part of the Gudai-Darri Phase 1 Project. Mobilisation for SCEE is scheduled to commence late in 2020 with completion planned for December 2021.
Commenting on the award, SCEE Managing Director Graeme Dunn said “We are pleased to secure this significant award with such a longstanding and valued client as Rio Tinto for whom we have undertaken many successful projects in the Pilbara. This further boosts our already strong order book and will provide a solid base of construction work in the resources sector into the 2022 financial year.”
--- ends --- [I hold SXE shares.]
SCEE to acquire Trivantage for an enterprise value of up to $53.5m*:
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.
--- 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.]
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:
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.]
moat: industrial/commercial electrical engineering expertise/contracts (seems strong relative to other sectors)
demand: year round essential services
covid effect: slight negative impact of travel/work restrictions, but also a positive of gov resources/infra stimulus expected in this sector
financials: strong balance sheet, no debt (exactly what you want during pandemic)
dividend: fully franked ~6% dividend (ex dividend: 7 Oct 2020)
future: $440m contracts (including $330m work/contracts secured for FY21)
works with: RIO, BHP, commercial developers, NBN, gov transport etc
(verify for yourselves)
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.
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%
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.