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Thoughts on Southern Cross Electrical Engineering (SXE)

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Thoughts on Southern Cross Electrical Engineering (SXE)

Looking for your thoughts on SXE with its picks and shovel play to the data centre thematic. It's been on my watch list for some 6 months or so and have continually watched it grind higher on contract wins. Is the stock simply too expensive at these levels noting that its 5 year average PE is around 10x vs current 12mth trailing PE of ~18x. Construction services businesses low margins have always been a concerning factor on entering players like this and Worley for mine.


Hi Scott,

You make some good points here around valuations and low margins in these sorts of businesses. One of the reasons we like WOR is because of improving margins due to the composition of their work in hand, essentially moving to higher value areas where they charge more, and this is also an obvious trend in Southern Cross Electrical (SXE), albeit, at a smaller scale.

The earnings momentum of this $386m company has been strong and the share price has been reflective of that. They recently announced their largest ever contract win and provided strong guidance for FY25.

Ultimately, we think the thesis here is very similar to WOR, it is a very well-run company exposed to sectors that are expected to deliver material growth over the next few years. More efficient electrification is required to help Australia reach its target of net zero emissions by 2050, and SXE are well positioned to benefit. While we think their valuation is high, it makes sense given these tailwinds. We like SXE.

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Southern Cross Electrical Engineering (SXE)
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