Southern Cross Electrical's Data Centre Boom Comes With a Valuation Warning

A run of contract wins and a bold FY27 guidance step-up drove a near doubling in the share price, but some fund managers say the easy gains are behind it.

21 Aug 2026 · 3 min read

Southern Cross Electrical Engineering nearly doubled through the first half of 2026, culminating in a June quarter where the electrical contractor upgraded its earnings guidance, introduced a step-change FY27 target well ahead of consensus, landed more than $150 million of new data centre and resources contracts, and raised $165 million in fresh capital, only for the stock to swing violently in July on broad AI-capex sentiment that had nothing to do with the company itself.

A capital raise built for a much bigger business

QVG Capital said the well-telegraphed $165 million raise is intended to fund more than $500 million of incremental revenue as data centre construction ramps up, while leaving room for further acquisitions. Much of what management discussed during the process was consistent with prior commentary, but maiden FY27 EBITDA guidance was genuinely new information, forcing consensus estimates up by around 33 percent. SG Hiscock and Company said management now expects data centre revenue to roughly triple to $360 million in FY27, a figure that reinforced its conviction following a Perth site visit the previous month.

Management now expects data centre revenue to approximately triple to $360m in FY27, reinforcing our conviction following last month's Perth site visit.

— SG Hiscock and Company, Monthly Report, June 2026

The contract wins behind the upgrade

Glennon Small Companies detailed more than $150 million in new work awards behind the guidance lift, including initial electrical and communications work on NEXTDC's S4 data centre in Western Sydney, data centre switchboard manufacturing, and an agreement covering Rio Tinto's Pilbara operations. The company lifted FY26 underlying EBITDA guidance from at least $72 million to at least $75 million and introduced FY27 guidance of at least $100 million, which Perpetual Asset Management noted implied roughly 33 percent year-on-year growth against a market consensus closer to $80 million. Ausbil Investment Management reported the stock returned 74.2 percent for the quarter on the combination of contract wins, the guidance upgrade and the well-supported capital raise.

A rare word of caution on valuation

Naos Asset Management struck a more cautious note even while acknowledging the strength of the operational story, pointing out the stock has more than doubled in value over the past 12 to 18 months, underpinned by order books at multi-year highs and improved pricing power as bid lists have shortened.

Valuations are now well above long-term historical averages, and the bar for further re-rating is materially higher than 12 to 24 months ago.

— Naos Asset Management, Quarterly Report, June 2026

July's whiplash: sentiment, not fundamentals

QVG Capital said its Southern Cross Electrical holding fell 20 percent early in July before recovering 10 percent later in the month, a swing it attributed to global macro sentiment around AI and electrification rather than any company-specific news. Pendal Group made a similar point, noting the stock gave back some of its recent gains as part of a broader rotation away from AI-capex beneficiary names and weakness across the wider contracting sector, while confirming it continues to hold the position as one of its preferred ways to access structural, cyclical tailwinds in data centres and electrification.

What happens next looks likely to depend on execution rather than sentiment: whether data centre revenue tracks toward the roughly $360 million SG Hiscock cited for FY27, whether the ambitious step-up to at least $100 million of EBITDA is delivered against a consensus that only recently sat near $80 million, and how the newly raised $165 million of capital gets deployed between organic growth and further acquisitions in a sector Naos warns is now priced for continued good news.