Company Interview / Engineering profits with these small cap stocks

Key points:

Fleming highlights Southern Cross Electrical (ASX:SXE) and SKS Technologies (ASX:SKS) as core electrification and data centre exposures Argues resources demand for copper, base metals and rare earths supports a more structural, not purely cyclical, outlook Favourites in engineering include Lycopodium (ASX:LYL) and GR Engineering (ASX:GNG) for their leverage to new project builds

Joel Fleming from Yarra Capital Management outlines a bullish view on Australia’s electrification and data centre build-out, seeing it as a multi‑year opportunity that favours specialised small and micro-cap contractors. Fleming cites Southern Cross Electrical (ASX:SXE) as a key beneficiary, highlighting its recent earnings upgrade, capital raising and growing pipeline linked to major data centre projects such as the S3 and S4 facilities. He suggests Southern Cross shows strong competitive advantages and sees its work program extending well beyond the near term.

Given portfolio limits around 5% per position, Fleming explains that gains in Southern Cross are recycled into similar “picks and shovels” names. He points to SKS Technologies (ASX:SKS), which he says is leveraged to data centres and broader electrification themes, including grid upgrades, renewables, batteries and EV infrastructure. Fleming argues these businesses combine skilled labour, solid balance sheets and strong reputations, positioning them to capture rising demand.

In resources, Fleming is “very positive”, pointing to underinvestment and growing needs for copper, base metals and rare earths. He highlights Lycopodium (ASX:LYL) and GR Engineering (ASX:GNG) as preferred engineering exposures, suggesting the market undervalues their global project pipelines and potential for higher multiples if structural demand for mining and processing infrastructure persists.