Southern Cross Electrical Engineering (ASX: SXE) $4.82

It’s not often we see a company raise capital and rally sharply, but that was the experience for Southern Cross Electrical Engineering (SXE) yesterday following a strongly supported $150 million institutional placement. The response highlights the market’s confidence in one of the ASX’s leading data-centre infrastructure plays.

• The placement was completed at $4.00 per share, the top of the bookbuild range and just a 0.5% discount to Friday’s closing price.

The raising was accompanied by an earnings upgrade, with SXE increasing its FY26 EBITDA guidance to at least $75 million, from more than $70 million previously, while forecasting FY27 EBITDA of more than $100 million. The stronger outlook is underpinned by new contract wins across data centres and other infrastructure markets.

The market had been expecting FY27 earnings growth closer to 10%, rather than the 30%-plus increase now implied by management’s guidance. That level of confidence clearly surprised investors and explains why the shares rallied despite the dilution from the placement.

The valuation is no longer cheap after the stock’s powerful run. On a P/E of around 25x, SXE’s 140% share-price rally over the past year has been driven by a combination of strong earnings momentum, exposure to the highly sought-after data-centre theme and a healthy dose of multiple expansion.

SXE now trades around the highest earnings multiple in its history. However, the substantial growth now expected in FY27 goes some way toward justifying the premium.

Current customers include major operators such as NextDC and DigiCo, leaving SXE well positioned to benefit from the significant investment flowing into digital infrastructure.

As part of the raising, eligible retail shareholders will also be offered the opportunity to invest up to $30,000 through a share purchase plan. The SPP is targeting a further $15 million at the same $4.00 issue price.

SXE intends to use the proceeds to fund working capital associated with its growing pipeline of project wins and provide flexibility to pursue acquisitions that broaden its geographic reach or add new capabilities.

Importantly, this is not a defensive capital raising; it is an offensive move. We suspect a meaningful portion of the capital will ultimately be deployed into acquisitions. Businesses in this part of the market are often privately owned and can be earnings-accretive from day one, although execution and integration remain important risks.

• The ability to raise substantial capital at virtually no discount, while simultaneously upgrading earnings expectations, is a strong endorsement of both management and the company’s growth outlook.

SXE continues to execute impressively and is emerging as one of the clearest ASX beneficiaries of the data-centre construction boom. We love the SXE story, although valuation is now looking stretched around $4.80 — albeit we have said that before.