Mon 11th May

Well I had a look at SXE. Same issues here as I have with SKS. Both stocks look very similar and obviously backs up @jcmleng thesis on there similarities with also notes from @Noddy74 on SKS being a little more focused in comparison with SXE with more diversity. Both of these stock have really blasted off and make it difficult to determine where they are in there Charting journeys / cycles.

The below chart is what I can figure to the best of my abilities. All longer time frames (3d, 1w, 1m) are all very high and due for a reset. Again, like I also mentioned for SKS (just on charting alone) I'm not comfortable taking positons in these stocks as I'm not confident in what the charts are telling me. Sometimes when stocks blast ahead, it will take the next decent retrace to determine where its up to. Same as waitng for reports to come out. Questions is, at what stage does the market think they have overbaked the stoke. I think now, I have seen some sings of it on the charts however Im also seeing FOMO mixed in there.

For the stock to get where it is, obviously the market has thought it was vastly undervalued. Due to my lack of ability in predicting a companies value, this is where I to into account Strawman members thoughts / valuations.

Heres the 3d charts

Discl: Held 1.40% IRL

The SXE price made a new all-time high today, both intraday ($3.60) and closing ($3.57) which is very good to see as:

• it "confirms" that the current bullish trend is still intact - higher lows (27 Mar 26 vs 2 Dec 25) and higher highs (today vs previous 19 Feb 26 peak)
• the pullback which started mid-Feb was a nice textbook retracement, smack bang at ~50%

The price is now in uncharted stratosphere - a good place to be!

Topping up at around $2.77, my target top up area is now looking increasingly challenging.

My plan is now to start nibbling below $3.16, then progressively average down through to ~$2.77, before backing up the truck to load up around $2.77, if it gets there ...

Discl: Held IRL 1.35%

I stumbled across a write up on SKS Technolgies (ASX: SKS) which gave me the immediate impression that it was a competitor to SXE in the Data Centre space, and in electical contracting work. This was a bit troubling, so put some questions through to my buddy, Chat, to peel this a bit more. After a lot of rationalising and distilling, the inputs were quite insightful and increases my conviction on SXE.

I do not have much understanding on SKS - would be great if someone following SKS more closely could validate/challenge.

SUMMARY

• On the surface SKS does look like an SXE-lite
• SKS is a partial and indirect competitor to SXE — but not a full-stack competitor.
• They overlap in specific verticals (mainly commercial electrical + data centres), but SXE is broader, deeper, and structurally different.

• Competition is not SXE vs SKS directly — it is “who gets which package inside the same project” - They often co-exist on the same site
• The real competition happens at the subcontractor selection level, not end-client level.
• SXE’s highest-quality revenue (recurring + industrial) has zero competition from SKS
• SXE and SKS are not fighting for customers — they are fighting for scope within the same customers

This means (1) both can grow simultaneously and (2) Market growth matters more than competition 

F. KEY INSIGHTS

1. SKS confirms the attractiveness of SXE’s markets

SKS is growing fast, winning data centre work, expanding margins 

The overlap between SXE and SKS is actually a bullish signal, not a bearish one because it confirms (1) strong demand in data centres (2) multiple contractors can win work (3) projects are large enough to support multiple players

2. SKS is a “Specialist Competitor”, not a Platform Competitor

SKS competes within slices

SXE competes across the whole value chain

3. Data Centre Margins

Because both are present, pricing pressure exists and margins may compress 

4. Expansion into each other’s territory

If SKS moves into: (1) heavy electrical infrastructure (2) substations (3) grid - THREAT increases materially

If SXE expands further into (1) AV (2) smart systems → competes more directly with SKS

You should think of SKS as “A strong vertical competitor inside data centres and commercial buildings — but not a full-platform threat to SXE.”

5. Investment Implications

The risk is not that SKS replaces SXE.

The risk is in data centres, SXE does NOT have a monopoly — and SKS proves pricing pressure exists

Bottom Line

Are they competing for the same customers?

✔️ Yes — but only in the specific data centres and commercial builds segments

Are they competing in the same business?

❌ No — SXE is significantly broader

Just picking up on a point @SudMav made in his comments from the Resources Rising Stars event in https://strawman.com/forums/topic/4503#post-42943 as it relates directly to SXE and reposting in the SXE folder:

• The demand for grid integrated power or renewable energy infrastructure is likely to increase over the coming years for mining operations.

That is good validation that SXE's staying in Mining and focusing on renewable energy infrastructure is absolutely the right thing to do/be focused on!

Discl: Held IRL 1.27%

Wrapping up my SXE deep dive with the 1HFY26 results. Apart from the WestConnex arbitration debacle, I really like:

1. How the rollup acquisition strategy makes sound sense in terms of carefully expanding SXE's adjacent capability around its core electrical expertise, has come together nicely and showing up in revenue and in providing SXE with a multi-disciplinary capability that seems to be resonating with its customers.

2. The impact of the structural tailwinds of (1) Data Centres (2) Infrastructure (3) Renewables (4) Electrification clearly showing up in revenue and the growth outlook ahead - there are many ways to win and SXE is well positioned in each.

3. The spreading out of the order book in terms of geography, sector and discipline, reducing dependence of a single instance of these dimensions.

REVENUE

• Translating into revenue growth
• 1HFY26 revenue is 12.2% down from pcp as activity from the Collie Battery and Western SYD airport projects winding down
• Force Fire was consolidated in full and continues to perform strongly

Infrastructure - down 33.8% as project ends were offset by significant ongoing revenue contribution from Shoalhaven, Shellharbour Hospital and Data Centre projects including NEXTDC SYD03 Artarmon

Commercial - up 44.2% from Force Fire industrial warehousing and commercial building projects, ongoing Coles, Woolies works by SJ Electric, Heyday’s SYD/ACT projects including the Atlassian Building

Resources - marginally down, ongoing SCEE works for BHP, RTO, Sino Iron and SEME Solutions minesite and accomodation village security upgrades

GROSS PROFIT

$65.9m, a record half-year result, up 30.3% on pcp

Underlying EBITDA and EBIT rose30.8% and 25.5% from pcp, excluding the impact of the WestConnex debacle

$46.1m was written off from WestConnex, resulting in Net loss of ($12.8m) vs NPAT of $16.2m pcp

Gross margin percentage 18.9%, significant jump from pcp 12.7% and 2HFY25 13.2%

Driven by (1) successful outcome of the CBESS project (2) more favourable mix of Heyday commercial building projects (3) contribution from Force Fire

CASH

• $58.8m, down from $88.6m end 2HFY25
• Includes settlement of WestConnex, dividend payout $13.3m, unwinding of $12.2m CBESS advance payments, deferred consideration payments $4.7m for Force Fire and MDE acquisitions
• Debt free

ORDER BOOK

• Consistent steady rise since FY22, up 6% from pcp
• Infrastructure is the largest component at 65%
• 85% of the Order Book is now on the East Coast
• Over $200m of the orderbook is in the adjacent non-electrical disciplines
• Ability to provide multi-disciplinary offerings is gaining traction with clients as evidenced by recent rewards, growing proportion of tendering pipeline composed of multi-disciplinary offerings

OUTLOOK

• Increased underlying FY26 EBITDA guidance to at least $72m, up 31% on FY25 EBITDA
• Growth expectations underpinned by strong exposure to structural tailwinds of the growth in (1) Data Centre construction (2) Infrastructure investment (3) renewable energy projects and (4) electrification
• Data Centre revenues expect to be similar to FY25 of $120m, with significant growth in this sector in FY27, tendering on NEW DC projects with over $1b of work for SCEE over construction period
• As Western Sydney Airport Stand Alone Facilities project is now underway, expecting long-term pipeline of works with further airport expansion and development of the surrounding Aerotropolis region, particularly industrial warehousing construction for Force Fire and Heyday
• High confidence of future awards on the SYD Metro West station developments, following award of St Mary’s Station Project
• Positioning around major hospital developments in NSW and ACE in the medium term
• Tendering for multiple battery and wind farm developments across the country and expect to announce further battery projects this year

Discl: Held IRL 1.21%

WestConnect Arbitration Fail

Following @GazD and @Colflan's comments 4 months ago, had a closer look at the WestConnex Arbitration failure as the fallout from a trend perspective in FY26 was pretty stark.

Having been directly involved in an acrimonious software-related arbitration before, the mindset going into arbitration prep was very simply akin to going to war. You prep to go into combat firing your best shots and you prep to defend what will be the enemy’s best shots. 

I thus find the commentary that SXE “expected from the conduct of CDSJV ... that the time-bar provisions would not be strictly enforced” as one of the basis for pursuing the claim, completely diabolical. No wonder they got their butts kicked and more. Not succeeding in the extra claim is one thing, paying back what had already been received is quite another - the price of being greedy, really.

But based on the CFO’s commentary in the last SM meeting, this should be a one-off event. Lessons have been learnt, policies and procedures have since been put into place, so it should be all good from here. 

My buddy Chat keeps banging on about project risk being one of the key risks for SXE. I am not overly concerned with this given the sheer volume of projects that SXE has been, and is currently, involved in. Shit happens, but hopefully the new processes implemented since this debacle will mitigate the risk of future legal stuff ups like this. 

Apart from the blip in the price on the day the Arbitration decision was announced, the SXE price just kept going as if nothing had happened - a good sign that the market saw this as a one-off, with all the promise of SXE growth still very much intact

Discl: Held IRL 1.21%

I wanted to get a better understanding of SXE’s contracts as part of my due diligence process. I started by asking my buddy Chat to summarise all contract announcements since 1 Jan 2024, by date, then customer, type of contract, type of work, summary of scope. It was a frustrating process as Chat got too cute for my liking, went all over the show, chewing up valuable usage credits etc. 

I gave up and worked through the contract award announcements myself. It was worth the time as it gave me a really good feel of the nature of the contracts and how it has evolved in the last 2 years.

SXE Contracts CY2024 to 7 Apr 2026.pdf

I then asked Chat the following:

ChatGPT prompt: This is a spreadsheet which summarises the contracts won by ASX: SXE since 1 Jan 2024 to today. I was not impressed by the to-and-fro yesterday, so I went and did it myself. Can you analyse the contracts and point out any trends around: (1) repeat customers (2) repeat contracts (3) mix of contracts (4) type of contracts (5) any other emerging trends (6) any other observations that should be taken into account in the investment thesis.

The outputs below were a pretty good summary, with supporting examples, of what I was sensing when I worked through the detail of each contract announcement. Chat’s one-liner summaries, highlighted in bold italics, were quite insightful, I thought.

Overall Takeaway

My overall takeaway is the growth, customer, sectors and evolving nature of the contracts is very much aligned to SXE management strategy, acquisition strategy and commentary. This gives me good confidence on the reliability and quality of the revenue and hence, the broader trajectory of the company, which has increased my conviction in SXE.

1. Repeat Customers (VERY strong signal)

Clear Tier-1 repeat clients

Data centres

•  Multiplex (NEXTDC SYD03) → 6+ awards
•  J Hutchinson → multiple packages across same site
•  Taylor Construction → follow-on packages 

This is not “winning projects” — it’s being embedded in a multi-year build program.

Mining

• BHP → multiple contracts in a single announcement (3 separate scopes) 
• Rio Tinto (via Hamersley Iron) → ongoing work 
• Newmont → 30-year relationship, 4th extension 
• CITIC Pacific Mining → MSA since 2015, renewed again 

This is decades-long client stickiness, not cyclical project exposure

Infrastructure / Utilities

• Synergy → multiple contracts (BESS + switchyard) 
• Energy Queensland → multi-year extension 
• ACCIONA Construction → repeat manufacturing work 
• WeBuild → multiple project involvement 

SXE’s real moat is not capability — it’s repeat access to Tier-1 clients across multiple scopes and years. This is extremely valuable and underappreciated.

2. Repeat Contracts (Even more important than repeat customers)

This is where things get interesting.

Data centre example (critical)

SYD03: 

• 4th award (Mar 2024) 
• 5th award (Apr 2024) 
• 6th award (Dec 2024) 

That’s a multi-phase, multi-year revenue stream from ONE asset

Western Sydney DC cluster

• Hutchinson + Taylor: 
• 2 packages → 6 packages → 10 packages 

This is effectively“framework-style contracting without calling it a framework”

Mining example

BHP: 

• Charging infrastructure 
• Transformer install 
• Comms + solar hybrid 

Same client, different scopes, same asset base

SXE is not bidding job-by-job — it is landing on-site and expanding scope over time. That dramatically reduces (1) bid costs (2) risk (3) volatility.

3. Mix of Contracts (Clear strategic shift)

Let’s simplify your dataset:

SXE is actively upgrading its revenue mix toward (1) higher margin (2) longer duration (3) more defensible segments.

4. Type of Contracts (THIS is the biggest change)

You now have 4 distinct contract types:

1. EPC / D&C (traditional) - Still core, but no longer dominant

• Heyday electrical 
• SCEE Electrical installs 

2. Manufacturing (Trivantage) - Higher margin, less labour risk

• Switchboards 
• Control systems 
• Panels 

3. Maintenance / MSA (CRITICAL) - Recurring revenue disguised inside a contractor

• Energy Queensland (4-year) 
• Newmont (5-year) 
• CITIC (2-year) 

4. Multi-service bundled contracts - This is the platform model in action

Examples:

•  Airport (Heyday + MDE) 
• Data centres (Heyday + Trivantage + Force Fire) 

SXE is transitioning from project contractor → multi-service infrastructure platform. That should justify multiple expansion over time.

5. Emerging Trends (This is where alpha is)

Trend 1 — Data centre dominance - This is structural demand (AI / cloud)

• Appears in almost every announcement 
• Increasing number of packages per site 

Trend 2 — Electrification everywhere - SXE is a picks-and-shovels electrification play

Examples:

• BESS (Collie) 
• EV charging (BHP rail) 
• Grid infrastructure (Energy QLD) 

Trend 3 — Cross-subsidiary integration - This is the roll-up strategy actually working in the field

Examples:

• Heyday + MDE (airport) 
• Heyday + Trivantage (metro) 
• Heyday + Force Fire (DC) 

Trend 4 — Increasing contract size + bundling - Scaling is happening

• Early: many small contracts 
• Later: $90m–$160m bundles 

Trend 5 — Recurring revenue quietly rising - This is the key to re-rating

• MSAs 
• maintenance 
• fire compliance 

6. Other Critical Observations

1. Revenue visibility is much stronger than it looks - Order book quality is higher than reported headline numbers suggest

• repeat packages 
• MSAs 
• multi-phase projects 

2. Customer concentration is a feature, not a bug - This is actually high-quality concentration

• Normally risky — but here:
•  BHP / Rio / NEXTDC are long-duration spenders
•  SXE is embedded in their infrastructure 

3. Labour risk is being mitigated

• Shift toward (1) manufacturing (2) maintenance (3) bundled services 
• Reduces exposure to wage inflation and project blowouts 

4. Force Fire is more important than it looks

• Appears small now but (1) high margin (2) recurring compliance work (3) attaches to every building
• This could become a hidden earnings driver

What This Means for the Investment Thesis

The market likely still sees “mid-tier electrical contractor”

But your dataset shows “integrated electrical infrastructure platform with recurring revenue and data centre leverage”

The 3 Most Important Conclusions

1. Data centres are not optional — they are core

• Repeat packages 
• Deepening relationships 
• Multi-year visibility 
• This is the primary growth engine

2. Recurring revenue is emerging (quietly) - This is what drives valuation re-rating

• MSAs 
• maintenance 
• fire services 

3. The roll-up strategy is working operationally - This is the key execution proof point

• Cross-selling visible 
• Multi-entity delivery 
• Increasing contract scope per client 

Bottom Line

Your dataset shows that Southern Cross Electrical Engineering Limited is not just winning contracts — it is embedding itself into long-duration infrastructure ecosystems and expanding scope over time

That is exactly how (1) margins expand (2) revenue becomes predictable (3) multiples re-rate 

Discl: Held IRL 1.24%

Here is Part 1 of my deep dive into SXE. I am doing my usual process in reverse. I opened the SXE position based on very good insights from @Bear77 + the good recent SM interview with SXE's CFO as the price was at attractive levels.

Part 1 is a reasonably detailed Business Overview, Investment Case and Risks, with input from my buddy, Chat, but tidied up to remove the "opinion"-type input. My conviction on the SXE business has risen following this exercise, and I topped up last week as a result.

Will get on to the usual financial trend charts, then a Valuation thereafter.

A. WHAT DOES SXE DO

SXE is essentially an electrical engineering contractor + specialist systems integrator. SXE is a mid-tier electrical infrastructure contractor positioned between:

• small subcontractors
• mega contractors (Downer / Ventia)

SXE’s strategy is to buy specialist electrical contractors and roll them into a national platform.

B. KEY SXE CAPABILITIES

They also work on energy transition projects such as solar farms, wind farms and electrification of infrastructure. 

C. SXE’S STRATEGY

D. STRUCTURE OF THE GROUP

SCEE Group operates as a multi-brand electrical engineering and infrastructure services group headquartered in Perth. It was founded in 1978 and listed in 2007. 

The group now has ~1,900 employees and operates across resources, infrastructure and commercial markets. 

E. OPERATING BUSINESSES - ACQUISITIONS

1. SXE acquisitions tend to follow three themes:

• Capability adjacency (electrical → communications → fire)
• Shift toward recurring revenue (maintenance contracts)
• Exposure to structural capex cycles:
• data centres
• electrification
• Infrastructure

2. SXE’s deals follow a very consistent pattern. Typical target profile:

This makes them easy to integrate and scale.

3. SXE is executing what private equity would call a “capability roll-up.” 

• Instead of buying companies in the same niche, it buys companies that add adjacent electrical capabilities.
• SXE is building what can best be described as an “electrical infrastructure platform.” The strategy is to control multiple layers of electrical systems within a project.
• Each acquisition adds a new capability to the platform
• SXE is gradually filling out the entire electrical infrastructure value chain.
• Once all pieces exist, SXE can bundle multiple services into a single project. That dramatically increases revenue per project, margins, client stickiness.
• Roll-ups work best in fragmented industries. Electrical contracting is extremely fragmented. In Australia there are thousands of small contractors, many owner-operator businesses, limited national platforms, 
• SXE is trying to become the national consolidator.
• This strategy is not random — it follows a repeatable pattern that many successful infrastructure consolidators use.

The stack SXE is building:

Think of a modern infrastructure project (data centre, hospital, mine, airport).

SXE has been acquiring businesses to fill each layer of this stack.

This model is powerful as:

• Larger project share: Example: a hyperscale data centre. Electrical scope could include (1) power distribution (2) switchboards (3) cabling (4) fire protection (5) communications. If SXE provides 3–4 of those, revenue per project increases significantly.
• Higher margins - Vertical integration reduces reliance on subcontractors.
• Instead of: SXE → subcontractor → client
• You get: SXE → client
• Capturing more margin
• Recurring revenue - Once systems are installed, they require inspection, testing, upgrades, compliance maintenance. This creates long-term service contracts.

4. The Next Acquisitions SXE Is Most Likely to Make

If the strategy continues, the next acquisitions will likely fill remaining capability gaps.

High-Voltage Power Specialists - This would expand into substations, grid infrastructure, renewable connections.This is a massive electrification market. Competitors here include: GenusPlus Group, UGL Limited.This would expand SXE’s exposure to renewable energy projects and grid infrastructure.

Data Centre Engineering Specialists - SXE already does electrical work for data centres.But it could buy firms that specialise in: hyperscale power systems, cooling integration and data centre commissioning. This would deepen the AI infrastructure thesis.

Data centre cooling infrastructure - Cooling is one of the largest costs in data centres. Potential capabilities mechanical services, cooling systems, HVAC for data centres. This would deepen SXE’s data centre exposure.

Renewable Energy Electrical Contractors - Australia is building solar farms, wind farms, battery storage. Electrical contractors specialising in HV connections, inverter systems, battery systems would fit perfectly.

Smart Building / Automation Firm - Buildings increasingly require IoT systems, smart energy management, automation. Buying companies that specialise in building management systems and smart infrastructure would expand SXE into digital buildings.

Maintenance Platform Businesses - Maintenance businesses generate: recurring revenue, stable margins, predictable cash flow. This is why SXE bought Force Fire. Expect more deals in electrical compliance testing, facilities maintenance, infrastructure servicing.

Industrial automation - Capabilities include PLC programming, industrial control systems, robotics integration. This is particularly relevant for mining and manufacturing projects.

Electrical maintenance specialists - Companies focused purely on long-term service contracts, facilities maintenance, compliance testing. This improves recurring revenue stability.

5. Why the Roll-Up Could Work - Several conditions make this strategy viable.

Founder-led small businesses dominate the industry. Many electrical contractors are owned by founders nearing retirement, family businesses. These are natural acquisition targets.

Customers prefer larger contractors - Large clients prefer vendors that can deliver national coverage, multiple services, safety compliance. This benefits consolidators.

SXE has proven integration ability - The group has successfully integrated Datatel, Heyday,Trivantage, MDE, Force Fire. That builds credibility with sellers.

If executed successfully, SXE becomes something closer to an electrical infrastructure services platform. Comparable companies globally include Quanta Services, EMCOR Group. These companies trade at much higher valuation multiples than traditional contractors.

6. What Could Break the Strategy

There are three main risks.

• Integration risk - Acquisitions must retain their management teams and culture.
• Overpaying for acquisitions - If competition for targets rises, returns could fall.
• Construction downturn - Electrical contractors remain exposed to construction cycles.

7. Key Metrics To Confirm Roll-Up is Working

• The best indicator is revenue per employee. As integration improves: project scope increases, margins improve, revenue per worker rises. If you see: revenue growth, stable headcount, rising margins…it means the platform model is working.
• Acquisition cadence: Expect one acquisition every 1–2 years.
• Revenue per client: This should rise as SXE bundles more services.
• Recurring revenue: Maintenance and compliance services should grow.

8. Summary

What SXE is quietly building is not just an electrical contractor. It is building a national electrical infrastructure platform that can deliver multiple systems inside large projects. If management executes well, the company could transition from:

• Contractor valuation: 10–12× earnings, to something closer to:
• Infrastructure services platform: 15–18× earnings

That multiple expansion alone could drive significant upside.

F. MARKET SEGMENTS

SXE operates across three main markets:

SXE management often highlights three macro tailwinds:

• Electrification
• Infrastructure spending
• Data centre buildout

G. MAIN CUSTOMERS

These are usually large project owners or tier-1 builders.

Example: SXE subsidiaries have delivered electrical works for hyperscale data centres and major infrastructure projects. 

H. MAIN COMPETITORS

SXE competes in the electrical contracting / engineering services sector.

Competition typically occurs at the project tender level.

GenusPlus

The competitor investors often underestimate is GenusPlus.

• GenusPlus operates in almost identical markets - electrical infrastructure, power transmission, communications networks.
• But it has strong exposure to grid infrastructure, which is benefiting from renewable energy connections, transmission upgrades.
• The strategic difference:

Both companies are essentially playing the electrification megatrend but from different angles:

• SXE → electrical systems inside projects
• GenusPlus → power grid infrastructure

Both could benefit from the massive electrification capex cycle.

I. TOTAL ADDRESSABLE MARKET

SXE sits inside the Australian electrical engineering & infrastructure services market.

SXE revenue today is ~$700–900M, implying ~1–1.5% share of the addressable market. This means market share expansion + acquisitions can drive growth.

J. SXE’s MOAT

Engineering contractors rarely have strong moats, but SXE has several competitive advantages:

1. Skilled labour pool

• Electrical infrastructure requires licensed electricians and engineers.
• Australia has a chronic shortage.
• This creates labour supply moats.
• Will not have difficulty recruiting labour - tier 1 company focusing on sparkies, pay top rates, best safety record, best work conditions etc
• Barriers to entry for foreign labour
• All of SXE’s labour is governed by a regulated EBA, accept that there will be wage gains, passed on to customer

2. Long client relationships

• Large infrastructure clients prefer contractors with: (1) safety track record (2) scale (3) delivery history
• Switching risk is high.

3. Multi-discipline Capability

• SXE can deliver: (1) electrical (2) communications (3) fire (4) maintenance
• This enables package contracts.

4. Data centre expertise

• Through Heyday and MDE, SXE has strong exposure to: hyperscale data centres and AI infrastructure - this is a high-growth niche.
• Many investors say “SXE benefits from data centres”. But the real reason this matters is often misunderstood.
• Data centre revenue is growing fast - ~$20M/year historically, ~$50M FY24 and ~$120M FY25. pipeline >$500M of data centre projects being tendered. 
• Electrical is the biggest cost component, in data centre construction. Electrical work includes tansformers, switchgear, UPS systems, power distribution, cabling - SXE specialises exactly in this area.

SXE is well positioned as the group has multiple touchpoints on the same data centre project. Meaning SXE can capture several contracts in the same build

5. Acquisition playbook

Management has a proven bolt-on M&A strategy.

K. TOP 10 SHAREHOLDERS

L. INVESTMENT CASE

BULL CASE 

1. Structural Tailwinds - Electrification, Energy transition, AI data centres, Hyperscale cloud, edge computing, sovereign data requirements. These are producing a huge global data centre build cycle. SXE management says the sector is now “in an exponential growth phase.” 

2. SXE sits at the intersection of three major investment themes:

• Electrification: grid upgrades, renewables, transport electrification
• Infrastructure Spending - transport, defence, utilities
• Digital Infrastructure - Hyperscale data centres, AI compute infrastructure

3. Better project mix - SXE used to be heavily exposed to mining construction, which has thinner margins. Now the mix is shifting toward infrastructure, data centres, commercial buildings.These typically have higher margins and repeat clients.

4. Vertical integration - Through acquisitions SXE now does (1) electrical installation (2) communications (3) switchboard manufacturing (4) fire systems (5) maintenance. On a large project SXE can capture multiple scopes instead of subcontracting them.

5. Growing maintenance revenue - Maintenance contracts are (1) recurring (2) higher margin and (3) lower risk. Eg Force Fire already has ~30% recurring revenue

6. Fragmented industry - consolidation opportunities

7. Recurring revenue growth - maintenance, fire compliance etc

8. Operating leverage - margin expansion as scale grows

9. Strong balance sheet - acquisitions funded from cash

10. Founder Ownership - the founder of SXE, Gianfranco Tomasi, still owns ~16% of the company, making him the largest shareholder. Total insider ownership is ~23–24% of the company. Founder ownership creates three structural advantages.

• Long-term capital allocation - founder-led companies often focus on ROIC, avoid overly dilutive capital raises, pursue disciplined acquisitions. SXE has demonstrated this through: (1) Datatel (2016) (2) Heyday (2017) (3) Trivantage Group (2020) (4) MDE Group (2024) (5) Force Fire (2025). All were bolt-ons rather than large transformational deals.
• Cultural continuity - electrical contracting businesses rely heavily on reputation, client trust, delivery history. Founder involvement helps maintain culture and project discipline. This is particularly important in construction contracting, where poor governance can destroy margins.
• Alignment with shareholders - Founder ownership means the founder's wealth moves directly with the share price. That tends to encourage conservative balance sheet management, disciplined bidding, long-term strategy.

11. SXE is evolving from and electrical contractor to a diversified electrical infrastructure platform

• The stock will likely be driven by three variables:
• success of its acquisition strategy
• exposure to data centre construction
• ability to expand margins via recurring services.

BEAR CASE

• Project risk - fixed-price contracts can lose money
• Cyclical exposure - mining capex cycles
• Labour inflation
• Low barriers to entry - many regional contractors

M. RISKS

1. The biggest risk is project contracting risk. Electrical contractors often operate on fixed-price contracts. If a project runs into labour shortages, material cost inflation, design changes, delays, the contractor absorbs the cost.

SXE has the ability to pass on material cost inflation

2. Construction cycle - Commercial construction can slow sharply. Example: post-COVID commercial office construction fell.

3. Labour constraints

• The business is labour intensive, requiring skilled electricians. Australia has severe shortages.
• Labour shortage is not an issue for SXE as it is a Tier-1 electrical company and pays top dollar - it has no difficulty attracting and retaining electricians

4. M&A Execution Risk - SXE’s strategy relies on M&A.Bad acquisitions could destroy returns.

5. SXE Could Become a Takeover Target

SXE sits in a very interesting strategic position in Australian infrastructure services. It is large enough to be meaningful, small enough to be acquired.

The most logical acquirers are larger infrastructure contractors. Examples include: Ventia Services Group, Downer EDI, UGL Limited. These companies often buy specialist subcontractors to expand capability.

SXE is attractive as it has

• National electrical capability - SXE provides: electrical, communications, fire systems, maintenance across resources, infrastructure and commercial sectors. Tat makes it a strategic capability platform.
• Data centre exposure - Electrical contractors with data centre expertise are becoming valuable due to hyperscale cloud expansion, AI infrastructure buildouts. Large contractors lacking this expertise might buy a specialist.
• Fragmented industry - Australia’s electrical contracting industry is highly fragmented, which makes consolidation attractive. SXE is already acting as a mini-consolidator.

Discl: Held 1.19% IRL

Took a 2nd bite of SXE today at 2.81, averaging down from my initial opening position at 2.91.

• $2.77 looks to be shaping up as a short-term base - this is also the 50% retracement level from the previous up move
• If this breaks, $2.59 would be my next entry point - this level has seen some action going back to Nov 2025, it is also, very coincidentally, the 61.8% retracement level
• Next down is $2.43, which should provide stronger support from (1) previous support going back to Dec 2025 (2) uptrend line which goes back to June 2025 and (3) it will be close to the long term 200 Simple Moving Average line, usually a good support area

Am liking the improving risk reward position!

Discl: Held IRL 0.61%

I also opened a starter position on SXE today, pre-deep dive research, to take advantage of the drop in the price in the last 2 days. The technical picture is not as ideal as GNG, but there has been a decent 50% retracement since the 19 Feb 2026 high and I really liked the story after listening to the latest SXE SM interview.

Key points, which form my start point thesis:

1. Data Centre picks and shovel’s play - this is no longer an if demand, but a here-and-now demand
2. Severe shortage of sparkies - there just isn’t enough sparkies to fulfill all the demand out there today
3. Supply of sparkies is an industry issue, but not a SXE issue, as they are seen as the top tier employer in the sparky world
4. Minimal exposure to the mining sector
5. Nice balance sheet, lots of cash, but to be fair, the CFO says some degree of cash funding is required to fund operations.
6. Nice growth share price since Jan 2025, ascending straight 30 deg line to the right - much like DBI, GNG, XRF!

Will progressively move this to a 2.5% position over time. 

I should have paid more attention to Southern Cross Electrical after our chat with the CFO last year (shares more than doubled since then).

Good to see that they finally settled that nasty Westconnex legal mess. It dragged them into a statutory loss but if you look past the drama the actual operations are doing pretty damn good. EBITDA jumped >30% and they bumped their fy guidance to at least $72m.

Also worth pointing out that they’re still sitting on a monster pile of cash ($58m in cash with zero debt), and they’re paying out a 2.5c fully franked interim div in April.

Results preso is here

I've reached out to them to line up a follow up meeting with the CFO

Unfortunately this is a major hit to short term revenue, profit etc but it’s a one off and a buying opportunity in my book… added today

31-March-2025: Seems to be the day for announcing acquisitions - both SXE and EGL today.

SCEE (SXE): Acquisition-of-Force-Fire-Holdings.PDF

Also: Investor Presentation - Acquisition of Force Fire Holdings.PDF

Last week in his meeting with us, SCEE's CFO Chris Douglass said they are definitely acquisitive and looking to expand their capabilities through further acquisitions. He wasn't fibbing. Obviously they were all set to announce today's acquisition, but Chris couldn't give us any details of that last week (due to ASX continuous disclosure obligations) but he gave us plenty of strong hints.

Acquisition of Force Fire Holdings: Highlights:

• SCEE to acquire Force Fire Holdings, a leading New South Wales and Queensland based provider of fire safety solutions to the commercial and industrial sectors
• Initial upfront consideration of $36.3m and a total consideration of up to $53.5m for delivering EBIT growth targets in FY26 and FY27
• Fire sector is a natural adjacency to SCEE’s current capabilities
• Further growth in maintenance and recurring style works which account for circa 30% of Force Fire’s revenue
• Transaction to be funded through SCEE’s existing cash reserves
• Forecasting EBIT contribution of at least $10m for FY26 and beyond 

Again, like EGL's acquisition of Advanced Boilers and Combustion (also announced today), this acquisition of FFH by SCEE (SXE) is to be paid using their own cash, so no dilution through additional shares being issued or any debt involved. Chris made it clear to us last week that as long as he's their CFO, they would always be in a net cash position. He does not like debt.

In SXE's case they had $100m+ of net cash at December 31, however this acquisition will only use $36.3m of that, with up to $17.2m in deferred consideration to be paid if FFH deliver on EBIT growth targets in the following two financial years.

Chris made it clear last week that SXE run each business unit as a standalone business and they like to keep existing management in place and incentivised to continue to grow that business even after it becomes part of Southern Cross Electrical Engineering (SXE). The terms of this acquisition are certainly consistent with that.

It is also once again a complimentary bolt-on for SXE, expanding further on their capabilities through another adjacent area that also involves electricians, their core business focus.

Remember that Chris said that they look at around 200 opportunities each year and only do a deal on about one every two years, on average, although I did get the idea from Chris that the frequency might increase in the near term.

It certainly shows the power of saying "No" most of the time. When they have actually said Yes and done a deal in prior years, those deals have all been good ones that have enabled SCEE (SXE) to grow at a good clip and provide increasingly good TSRs for their shareholders. This one looks like another one in the same vein.

EPS accretive (of course): The transaction is forecast to result in at least 18% EPS accretion on a FY25 pro forma basis. The impact to SCEE is anticipated to be broadly neutral in FY25 as Force Fire’s contribution in FY25 will be offset by the transaction costs. Their contribution in FY26 is forecast to be at least $10m EBIT.

Disc: Holding both here and IRL.

Looks good. And the market likes it - on a day in which most companies are being sold down, EGL has been up as high as 26.5 cps this morning, and SXE has been up to $1.66/share, both are currently lower than that now, but both are still well up for the day.

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.

Southern Cross Electrical Engineering announced half year results today.

• Record half year revenue $397.4m, up 55.5% on PCP

• Record half year EBITDA of $27.1m up 58.5%, record half year EBIT of $23.2m up 73.7% and record half year NPAT of $16.2m up 67.8% on PCP

• Fully franked 2.5 cps interim dividend declared, up 150% on prior interim dividend

• Reiterating FY25 EBITDA guidance of at least $53m with expectations of further growth beyond

Looks good to me. What surprised me the most was cash of $114.8m, no debt, against market cap of circa $400m.

More Good news

11 December 2024 - Project awards circa $125m

Awards received totaling circa $125m

Range of projects in the data centre, commercial, manufacturing, resources and water sectors

Okay numbers for SCEE but the reason to be excited about this company are the structural tailwinds behind the company, which they have spelt nicely in the highlight section of the media release announcement.

Short-term investors might have expected a little more growth this year (not sure the guidance) with a posible sell-off in the share price, but their future expectations for FY25 plus 'FY26 and beyond' should soothe any concerns. Maybe. I don't know. Market can be silly in the short-term.

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.