We last covered SXE in December following an unfavourable arbitration ruling tied to legacy works on the WestConnex M5 motorway tunnel through its Heyday subsidiary. The total impact was ~$46.1m, recognised in the 1H26 result, of which, ~$19m was non-cash (write-off of a contract asset) and ~$25m+ was cash-related (repayments, interest and associated costs). So, while the headline number is big, the actual cash hit is closer to the mid-$20m range, with the rest an accounting adjustment.
The stock sold off hard on the news, then just as quickly recovered, and now we think the issue is in the rear-view mirror. At the start of the month, SXE was doing the rounds of brokers, emphasising the earnings power of the business going forward – and we tend to agree.
For those not across the business, SXE is a national electrical and multi-services contractor, delivering electrical, communications, fire, security and manufacturing solutions across large-scale projects. Historically leveraged to resources, the business has evolved meaningfully and is now far more exposed to commercial construction, infrastructure and technology-led projects like data centres. That evolution has come at the right time. The sectors SXE operates in are all seeing strong structural growth. Data centres are expanding rapidly on the back of AI and cloud demand (with a lot of capital raised in the last year to fund it), infrastructure spend remains elevated across transport and health, while the energy transition is driving significant investment in renewables, battery storage and broader electrification. SXE sits in the middle of all of these themes.
Putting the Heyday issue to one side, the underlying results released on the 18th February were very encouraging, yet the stock has sold off inline with broader market weakness.
- Underlying EBITDA $35.4m (+31%) in 1H26
- Margins improved meaningfully (gross margin 18.9%)
- Order book $710m (+6%), giving good forward visibility
- FY26 EBITDA guidance ≥ $72m (underlying),
SXE has evolved into a much better business than it was a few years ago. Through a series of smart acquisitions, it has diversified its offering and increased its exposure to higher-margin, more recurring work. That’s improving the quality of earnings and reducing reliance on any one end market. It’s also pushed its valuation higher, with the stock trading on 17.2x FY26 consensus earnings, well above its historical 11x, but down from its recent peak of 22x.
One of the key drivers for this re-pricing is the group’s ability to deliver integrated solutions across projects, combining electrical, communications, fire and manufacturing, which is resonating with clients and helping win larger, more complex contracts.
The standout announcement late last year was a ~$90m package of awards, split across data centres and rail:
- SXE secured multiple scopes on the DigiCo SYD1 data centre expansion in Sydney, covering electrical, fire and switchboard manufacturing
- At the same time, they won the electrical & communications package for Sydney Metro’s St Marys Station, part of the Western Sydney Airport rail link
Notable here is that these wins were across multiple disciplines, with Heyday (electrical install), Force Fire (Fire Services) & Trivantage (switchboards & power systems) winning roles. Shortly after, they followed it up with another ~$90m of awards, this time skewed more towards energy and infrastructure:
- Awarded the Steel River East Battery Energy Storage System (BESS) project in NSW – a key renewable/grid project
- Additional wins across education (ACT schools) and water infrastructure (QLD)
Earnings growth is solid (~10% per annum), which will reduce the PE multiple over time, while the group carries no debt and net cash of $58.5m (after payment of the Heyday issue) + Bank guarantees / surety bonds on issue of ~$96.8m (as part of $150m facility) i.e ~$155m of liquidity/support across cash + bonding utilisation, with further headroom still available.
We like the multidisciplinary approach SXE has built, and we see further scope for additional (earnings accretive) bolt on acquisitions. NRW (5-8x bigger than SXE depending on metric) is pursuing a similar model, recently buying Fredon Industries to give them some exposure to buildings/data centres, but they are still heavily exposed to mining and civil works, which is lower margin, more capital intensive. NWH has also had a good run, and is cheaper (14.5x FY26), but we prefer SXE which is more leveraged to structural growth / electrification themes.
- SXE remains on the hit list for the Emerging Companies Portfolio (for now), however, we are likely to add it to the portfolio, ideally ~$2.60
MM is bullish SXE
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