Southern Cross Electrical Adding Fire As Fuel

This story features SOUTHERN CROSS ELECTRICAL ENGINEERING LIMITED. For more info SHARE ANALYSIS: SXE

The company is included in ALL-ORDS

Analysts are effusive about Southern Cross Electrical Engineering’s acquisition of a fire safety company at an attractive price.

-Southern Cross Electrical Engineering acquires Force Fire
-Significant earnings accretion
-Complimentary services
-Expansion opportunities

By Greg Peel

Founded in 1978 and listed in 2007, Southern Cross Electrical Engineering ((SXE)), which refers to itself as “SCEE Group”, is a leading national electrical, instrumentation, communications and maintenance services group of businesses, diversified across three broad sectors of infrastructure, commercial and resources, and positioned to service the electrification and decarbonisation initiatives shaping today’s markets.

SCEE has announced the acquisition of fire safety solutions provider Force Fire Holdings Pty Ltd for consideration of up to -$53.5m, comprising -$36.3m cash payable on completion, -$5.2m in deferred consideration, and up to -$12.0m in contingent payments.

The acquisition consideration represents a multiple of 4.8x FY25 enterprise value to earnings (EV/EBIT) assuming Force Fire achieves earnings (EBIT) of $8.3m in FY25 as well as the associated FY25 deferred consideration and contingent payments. The transaction is on a 4.1x FY27 EV/EBIT assuming Force Fire achieves an EBIT of $13.0m in FY27 and maximum consideration is paid across FY25 to FY27.

The transaction will be funded through SCEE’s existing cash reserves ($114.8m at end-December, debt free). Management expects pro forma combined FY26 earnings (EBITDA) in excess of $65m and at least 18% earnings per share accretion on a FY25 pro forma basis.

The company expects the impact to its FY25 forecast to be broadly neutral with the Force Fire contribution offset by transaction costs. Force Fire’s FY26 contribution is forecast by management to be at least $10m EBIT.

Force Fire

Founded in 2004 and headquartered in Sydney, Force Fire is a leading Australian provider of end-to-end fire safety solutions with a 25-year history of servicing clients across in the commercial, industrial, data centre, education, and retail end markets. Force Fire manages a direct workforce of over 200 full-time equivalent employees across NSW and Queensland, including over 30 electrical tradespeople and 140 other skilled technicians.

Force Fire provides specialised fire safety solutions, having both mechanical (“wet fire”) and electrical (“dry fire”) capabilities, by executing projects and services/minor works for a highly recurring client base, enjoying long term relationships with a diverse range of facility managers, property owners, and builders.

Force Fire’s capabilities are complementary and adjacent to SCEE’s existing suite of services offered, Bell Potter notes. The company operates in a regulated market, in which adherence to regulation delivers non-discretionary, non-deferrable demand for fire safety, resulting in a high level of repeat clients.

Force Fire operates in the Commercial and Infrastructure sectors with exposure to data centre construction, hence SCEE sees scope for cross-selling opportunities.

Force Fire is expected to generate FY25 revenue of $106m and EBIT of $8.3m.

Rationale

The acquisition aligns with SCEE’s strategy to add adjacent and complementary capabilities and increase exposure to services and maintenance style works and recurring revenues, Shaw and Partners notes. The fire sector is a natural and logical adjacency to SCEE’s core electrical competence and complementary communications, security, and manufacturing capabilities.

Management’s rationale for the acquisition includes expansion into the attractive fire safety solutions market adjacent to SCEE’s current capability, in addition to a platform into broader non-discretionary technical building services.

Management expects further sector and geographic diversification with Force Fire’s FY24 revenue principally commercial sector exposed (88% commercial and 12% infrastructure) and offering continued expansion into the East Coast and offering further growth in maintenance and recurring style works (some 30% of Force Fire’s revenue).

Response

The Force Fire acquisition is a “great deal” from a valuation and earnings accretion perspective, Bell Potter suggests, with the expansion into fire safety a natural and complementary move.

Shaw believes this to be an “excellent acquisition” at an attractive price that provides SCEE the opportunity to provide fire safety solutions to its existing client base as well as adding new clients to the SCEE group.

The company remains well positioned to maintain its growth trajectory through FY25 and beyond, Moelis suggests, and in this broker’s view remains supported by a strong client base, growing recurring revenue, and with strong structural tailwinds in electrification and decarbonisation, translating into infrastructure spend.

Catalysts for the stock include pipeline conversion, continued growth, and further commercial and resources work awards.

Moelis has increased its earnings per share forecasts by 18% in FY26 and FY27, and raised its price target to $2.20, retaining a Buy rating.

Shaw has increased its EPS forecasts by 18.3% and 21.4%, while Bell Potter tops all with 20% and 25%.

Shaw and Partners’ target rises to $2.40 from $2.25. Shaw retains Buy given the 50% total shareholder return the broker believes might be on offer.

Bell Potter also retains Buy, lifting its target to $2.50 from $2.30.

Shares in Southern Cross Electrical had been dragged down because of investors’ mental connection to the global AI trade, which has fallen out of favour in 2025. News of this latest acquisition pushed the share price above $1.80 from below $1.50, but now the world is back in worrystreet on worse-than-expected Trump tariffs, the share price has come under pressure yet again.

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