3 ASX Grid Stocks In Focus After Rio Tinto Tomago Power Deal

The A$2.5b government backed power deal for Rio Tinto’s Tomago smelter has not just steadied one industrial giant. It has also fired up expectations for the renewable energy capacity that will be needed to supply Tomago with 100% renewables by 2033. For investors, that kind of long term demand story can be hard to ignore. This article looks at 3 stocks that appear well placed to be exposed to this news.

The three stocks in this article are just a starting sample, since the full screen surfaced 10 more Australian renewable energy and grid storage companies with equally interesting narratives that are not covered below. If you want to move quickly from big picture to specific ideas, head straight to the Australian Renewable Energy Generators and Grid Storage Providers screener to identify, compare and analyze the highest conviction plays in this theme.

Mayfield Group Holdings (ASX:MYG)

Mayfield Group Holdings is an Australian electrical and telecommunications infrastructure company that designs, manufactures and installs equipment such as switchboards, kiosks and transportable switch rooms for critical power networks. The company generates all of its A$145.6 million in revenue from electrical and telecommunications infrastructure, with operations fully focused on the Australian market. At a market cap of around A$248.5 million, Mayfield Group Holdings sits firmly in small cap territory.

Investors looking at grid upgrades and renewable build out may consider having Mayfield Group Holdings on their radar. The company operates in the core infrastructure of the power system, supplying the switchgear, high voltage services and critical power products that connect large projects such as future Tomago related renewables to the grid. Earnings growth has been very strong recently and margins have improved. However, the P/E is still below the broader electrical sector, which may appeal to some investors if that momentum proves durable. On the other hand, heavy insider selling, a lack of independent directors and reliance on external debt raise governance and funding questions that are difficult to ignore. The combination of potentially attractive growth indicators and clear risks makes this a story that some investors may feel warrants closer inspection.

Mayfield Group Holdings sits at the crossroads of stronger earnings momentum and a still muted P/E. However, the full picture only shows up once you see the 4 key rewards and 2 important warning signs

Build your own grid infrastructure shortlist

Mayfield Group Holdings and the other two stocks in this article all surfaced from a single Simply Wall St screener, but the real edge comes from setting your own rules. Use our flexible Screener to mix filters across valuation, growth, balance sheet and risks, or tap into our curated Investing Ideas for ready made starting points.

IPD Group (ASX:IPG)

IPD Group is a long established Australian distributor of electrical infrastructure and services, supplying switchboard makers, contractors and utilities with gear from brands such as ABB and Emerson. The business is heavily skewed to product distribution, with the Products Division generating about A$351 million of its roughly A$370 million in revenue, while the Services Division contributes around A$19 million, all from Australia. At a market cap of about A$524 million, IPD Group sits in the mid sized bracket on the ASX.

IPD Group sits in the flow of capital going into renewables, grid upgrades and electrification projects, from utility scale solar farms through to data centers and EV infrastructure. Earnings quality is flagged as high and revenue is expected by some analysts to grow faster than the broader Australian market, yet the stock still trades below one estimate of fair value. On the other hand, there is meaningful reliance on external borrowing and on a concentrated group of major suppliers, which could pressure margins if conditions change. For investors who want exposure to the Tomago linked build out without owning a project developer, this combination of growth exposure, valuation appeal and real world risk is a key part of the IPD story.

IPD Group sits where growth expectations and a subdued valuation seem to be pulling apart. Get the fuller picture with the analyst forecasts for IPD Group and see what the market might be missing about supplier risk and funding.

Southern Cross Electrical Engineering (ASX:SXE)

Southern Cross Electrical Engineering is a Perth based contractor that designs, installs and maintains electrical, communications, security and fire systems across commercial buildings, resources projects, infrastructure and decarbonisation assets such as solar and wind farms and battery storage. The group generates about A$691 million of revenue from electrical, security and communication services in Australia, with smaller segment adjustments bringing total reported revenue to roughly A$753 million. At a market cap of about A$1.4b, Southern Cross Electrical Engineering is one of the larger pure play electrical and energy transition contractors on the ASX.

Investors looking at the Tomago linked build out may find Southern Cross Electrical Engineering hard to ignore. The company is already delivering large battery and renewables projects and management has highlighted a strong tender pipeline across battery storage, wind farms and data centres, all of which need the kind of high voltage, cabling and systems integration work SCEE provides. Forecasts in the market point to rapid earnings and revenue growth. However, recent results were hit by a large one off loss that left net margins at just 0.4% and required fresh equity raisings, which means dilution and funding risk stay front of mind. For anyone interested in how contractors can be exposed to Australia’s energy transition without taking project development risk, this is a story that rewards a closer look.

Southern Cross Electrical Engineering looks like earnings and revenue could be on the move, while that wafer thin 0.4% net margin and recent equity raising still hang over the story. The real question is how those trends fit together inside the analysis report for Southern Cross Electrical Engineering

Seeking Fresh Alternatives Beyond Tomago?

New themes can move from quiet to crowded fast. Screen for fresh stocks while they are still under the radar for now and before momentum gets fully caught. Act now.

• Spot companies with strong cash generation and solid balance sheets by scanning the curated 10 high quality undervalued stocks before the crowd starts chasing the next breakout.
• Track how electrification and automation are spreading across industries by zeroing in on curated 39 robotics and automation stocks that could see meaningful momentum if spending continues to develop.
• Stay informed on the grid investment story by reviewing a focused 36 power grid technology and infrastructure stocks that highlights companies involved in transmission, substations and critical power equipment.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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