SXE - Southern Cross Electrical Engineering

[divs4ever]

Should probably shut up and buy some more!

mine average just over 50 cents so am not rushing to add YET

now you could talk up slowing economies which should bring down commodity demand and prices OR talk up the trend towards 'net zero ' where companies will move towards revamping power generation plant at sites ( which could be nicely timed in a mining downturn )

i assume that 4 cent div. this time ( 5 cents for the year ) is not sustainable , but something to watch if 'mining services ' companies get bashed as a sector

 

[Knobby22]

Another wonderful year for SXE, revenue dropped but NPAT up strongly, showing ability to grow gross margins. Probably also related to rolloff of large contracts where costs drop away. Cash conversion is particularly strong, roughly $45m of FCF compared to $20m NPAT. Yielding over 7%. Beyond me why this business is so cheap, no debt, wallowing in cash, plenty of work in hand, well diversified across sectors now and sensibly managed. Should probably shut up and buy some more!

View attachment 161637

I bought some when I made it my tip. Very happy.

 

[finicky]

Not eager to own this although I have leaned towards it on occasion. The all data chart shows massive swings in price and it doesn't hold up well in bad times. It strikes me as one of those 'buy it when noone wants it' stocks and is weighed by recent poor results. Its median ROE is mediocre at around 7% and based on that alone the current share price seems about fair - i.e not cheap.

Not Held

 

[Knobby22]

View attachment 138446

The gap-up created on Aug 25, 2021 has now been filled and it appears as though the downtrend from late October of last year has reversed, although yet again it is very early days at present.
@peter2 may well be looking at this share.

Normally I would agree with you but in this case there are some other factors however O am on holiday in Germany at present, pretty pissed and unable to argue my case.

 

[galumay]

mine average just over 50 cents so am not rushing to add YET

now you could talk up slowing economies which should bring down commodity demand and prices OR talk up the trend towards 'net zero ' where companies will move towards revamping power generation plant at sites ( which could be nicely timed in a mining downturn )

i assume that 4 cent div. this time ( 5 cents for the year ) is not sustainable , but something to watch if 'mining services ' companies get bashed as a sector

My cost price is not much less, that's the thing, it's a much better, bigger & more diversified business now, and barely noticed by Mr Market.

I have no idea what the economy, commodities or net zero will do or what influences they may have, I don't consider those sort of things as an investor as they are all un-knowable IMO. I avoid the lure of narrative and stick to buying well managed, profitable businesses that have little or no debt and high ROIIC.

Final divvy has been 4c for the last couple of years, at a payout rate of about 60% I would be surprised if it were not sustainable.

 

[galumay]

Its median ROE is mediocre at around 7% and based on that alone the current share price seems about fair - i.e not cheap.

You are right about ROE, but that's why it can be a misleading metric used in isolation. I much prefer to go to the effort of working out ROIIC because it tells me how much capital is needed to be added to generate returns for the business. I look at it over a 5 year period to smooth out capex. On that basis SXE's performance has been stellar, with strong growth in earnings with very little additional equity.

At the end of the day its our variant perceptions about value that create a market, it may well be that you are correct and its not as cheap as I think!

 

[divs4ever]

My cost price is not much less, that's the thing, it's a much better, bigger & more diversified business now, and barely noticed by Mr Market.

I have no idea what the economy, commodities or net zero will do or what influences they may have, I don't consider those sort of things as an investor as they are all un-knowable IMO. I avoid the lure of narrative and stick to buying well managed, profitable businesses that have little or no debt and high ROIIC.

Final divvy has been 4c for the last couple of years, at a payout rate of about 60% I would be surprised if it were not sustainable.

mining services , just like construction industry sub-contractors are often a victim when bigger customers fail , or start heavy cost reduction , squeezed on price , delays on payments , sometimes dragged through long legal cases over contracts

i also hold several other 'mining services ' companies and it can be a very rocky road , especially if they work for smaller companies where funding is liable to dry up in tough times .

cheers

 

[galumay]

You say that, but I have owned several good mining services businesses for years and they have been among my best performers.

I suspect the secret is to pick the good one, be able to value the businesses and then buy when they are cheap. Then I don't need to worry about the headwinds that will come and go over time.

Reality is all sectors have their challenges and headwinds at different times, that's why being able to determine an individual business's resilience makes it easier to weather the inevitable cycles.

 

[finicky]

Return on incremental invested capital (ROIIC - mouthful) isn't finding a corresponding reflection in per share measures that I can see. If book value isn't signifcantly rising, nor EPS, ROE or dividend, why should a shareholder be enamoured? Our reward comes on a per share basis. I'm overlooking FY22's improved result and ignoring FY23 (haven't taken it onboard yet) - one or two good years can be neutralised by a bad year so not a trend yet.

 

[galumay]

I cant help you if you don't understand why ROIIC is one of the most useful metrics for assessing the quality of earnings!

If you look thru the last 6 years most of those other metrics have been rising steadily.

As I said, I may have misunderstood the business and its not as cheap as I think, but I will sleep well at night owning a part of company like SXE and picking up a divvy that is over 10% yield now on my invested capital.

 

[finicky]

Book value not a strong trend (about 0.70 FY23)

Book Value ($)

0.65

0.56

0.55

0.63

0.61

0.63

0.64

0.69

0.67

Compared to prior history, EPS and ROE significantly improved in FY22 and FY23 (I get 0.077 eps and 11% ROE for FY23)

Cash up significantly FY23 and no LT debt they say. Record order book suggests a strong FY24.
To me it's worth more than the current price if basing on recent two years and likely comparable FY24.

 

[finicky]

Bought 10,000 @ 0.78

Chart suggestive of a channel and SXE could return to the 70c area but the imminent ex div would account for 4c of that and as I have tried to pound into galumay, there's value here. The more so considering the company's proclaimed FY24 ebitda outlook is similar to FY23. Book value FY23 is 0.69 and ROE is 11%. No debt and holding a lot of cash. I've also naively swallowed the decarb and electrification narrative.

Held

 

[divs4ever]

Bought 10,000 @ 0.78

Chart suggestive of a channel and SXE could return to the 70c area but the imminent ex div would account for 4c of that and as I have tried to pound into galumay, there's value here. The more so considering the company's proclaimed FY24 ebitda outlook is similar to FY23. Book value FY23 is 0.69 and ROE is 11%. No debt and holding a lot of cash. I've also naively swallowed the decarb and electrification narrative.

Held

normally when i invest in 'mining services ' company i veer towards the folks with the heavy machinery , thinking in a mining downturn they can pick up some work in the civil infrastructure sector ( i remember when governments built dams bridges and tunnels in economic downturns .. i guess that is the punishment for being old .. knowing there are alternatives to crying , screaming and begging for handouts

but the last 10 years ... sheesh all they do is cry about the lack of skilled engineers ( while training artists, hairdressers and political scientists )

i bought SXE on the mining + upgrading miners to cheaper energy power plants ( so they would have work in the cycle downturns) narrative ( nowhere did i dream of a mining super-cycle )

 

[finicky]

Yes, but remembering SXE is doing business across commercial and infrastructure as well as mining.
Of interest to me also was that in the preso out today they say their gross margin had next to zilch impact from labour shortages or inflation (1)

(1) Quote Page 7
"Gross margin percentage increased from 13.1% to 16.4% from solid
project performances and successful close-outs of major resources
projects. Inflationary cost pressures and labour market issues have
had no material impact"

 

[galumay]

and as I have tried to pound into galumay, there's value here

If only I had listened to you. Still you are not the first to try to pound some sense into me. My wife says its a lifetime's work.

 

[divs4ever]

Yes, but remembering SXE is doing business across commercial and infrastructure as well as mining.
Of interest to me also was that in the preso out today they say their gross margin had next to zilch impact from labour shortages or inflation (1)

(1) Quote Page 7
"Gross margin percentage increased from 13.1% to 16.4% from solid
project performances and successful close-outs of major resources
projects. Inflationary cost pressures and labour market issues have
had no material impact"

but what about future work , say in two or three years time , that is what the folks investing now are wondering about , now sure the desire for 'zero-emissions ' is a current tail-wind , but how many mining/energy companies will survive the transition , and of course government contracts can be a storm of unfathomable proportions

i was buying between February 2017 and April 2020 ( 54 cents down to 42.5 cents ) so i am not so stressed currently , but share price often depends on buyers vs. sellers ( i can bail-out at 55 cents and still crystallize a capital profit after costs etc )

 

[galumay]

I am always cognisant of what Bezos said about change, to paraphrase, as humans we focus on, and imagine everything is going to change, whereas the reality is most things stay just the same and don't change.

That's why ignoring macro & narratives and just investing in well run businesses, with a reasonable history of profits and dividends, low or no debt, buying at a discount to intrinsic value and holding them for a long time, remains a pretty successful approach!

 

[Knobby22]

This has been a really good buy and I regret not selecting it as a yearly pick.

The SP keeps rising ahead of the reports. Up 5% today.
Been a great buy, up 33% since I bought in August. Expecting a rise in dividend.

 

[galumay]

Well done @Knobby22, Its a great business, well run, serially under rated by the market IMO.

 

[finicky]

EBITDA (admittedly just ebitda) guided level with FY23 for FY24. Half year pretty much same as 1H23.
Work expanding for data centres they say. No debt. 'Electrification of things', lol. Looks ok to me,
So put in a late end of day bid for 5,000 more @ 0.85, although chartwise I'm seeing a chance of a retrace to 0.75. Undervalued imo.

Held