The Environmental Group Limited

ASX:EGL

The Environmental Group Limited

ASX:EGL
TradeAdd trade order Follow Unfollow Set Price Alert
$0.345 (+1.5%)
Last close price
#64
Rank
13
Held by
33
Followers
TradeAdd trade order Follow Unfollow Set Price Alert
Reports (3) My Report Forum Investors
Forum Topics EGL EGL History

Pinned straw:
Solvetheriddle
Added one year ago

I dont know this company but in reading their reports was struck by a certain deja vu, then i found this on wikipedia...lets hope history doesnt repeat for s/h's

By 2018 the RCR brand had a reputation for delivering high quality mining technologies, innovation and services to both national and international markets and by the end of Financial year 2018 the company had grown to $2Billion in Revenue and was net cash at June 30 2018, having paid down all debt facilities.[31][32][33]

In late July 2018, cost overruns were discovered on a project. At the time the cost overruns were significant however, the company remained in profit and net cash. The Chairman, Roderick Brown, directed RCR into a protracted voluntary suspension for a period of 30 days which was had long term ramifications.[33] The company completed a capital raising of $100 million by Macquarie Bank, paying $12.1M in fees, according to the 2018 Annual Report, and the company resumed normal activities.[34] The Chairman, Roderick Brown and Directors called in Administrators when the Secured Creditors withdrew support for them on November 21, 2018.[34][35] In the final report of the Liquidator, it was determined that the protracted Suspension and the loss of confidence in the Chairman, Roderick Brown and new CEO, Bruce James “had a significant adverse impact on the group and its ability to successfully tender for new projects”.[35]

According to the Administrator's Report, McGrathNicol oversaw “a sale process that involved more than 300 interested parties on an 'accelerated sale process' timeline, seeking bids with minimal conditionality”.[35] The Administrators admitted failure to sell the business as a whole “Ultimately, each bidder who had initially engaged in the 'whole of business' sale process concluded they would not submit final bids”.[35] This was expected due to the accelerated due diligence process that was unsuitable for sale of such a large complex conglomerate as identified by KPMG in “Navigating Complex M&A”.[36]

The Sell Off[edit]

In 2018, RCR Boilers was sold to The Environmental Group Limited
Bear77
one year ago

I was aware of that @Solvetheriddle and I have mentioned it in my straws. I held RCR Tomlinson (RCR) shares so I know their story well. I sold out as soon as they did the rescue raising - I applied for the shares I was entitled to buy under the rights issue, then immediately sold all of my RCR shares as soon as I received those new shares - which were bought at MUCH lower levels than where RCR had been trading at previously. I sold because the facts of what had happened were so far removed from the commentary that RCR management had been telling their shareholders, so I knew I couldn't trust what was left of RCR's management. What got them into trouble was their foray into solar farm construction. Every other division, including the Boiler maintenance division (Tomlinson) was fine, and profitable, and all of those divisions were picked up for very cheap levels by companies like EGL (who bought the Tomlinson boiler business) and NRW Holdings (NWH, who bought RCR Mining and Technologies, for around $10m from memory, which was peanuts for that business). I hold NWH and EGL, and while I am aware that they hold business units that were once run by RCR, that doesn't bother me at all, because they aren't making the mistakes that RCR did.

In summary, RCR went headlong into a new field in which they had limited experience (solar farm construction) and tried to carve out a market share by undercutting every other established player on price, and they failed. Forge Group did the same before RCR did, except the Forge Group foray was into power station construction (gas fired and combined cycle power stations), however their MO was exactly the same, to undercut everyone else on price, and they also went broke.

I don't see that behaviour with the companies who picked up the RCR business units for a song. The Tomlinson business that was formerly part of RCR was probably their oldest and most reliable business unit, consistently profitable, without shooting the lights out. Recurring revenue from scheduled maintenance of boilers across the country, year in and year out. They had a very good reputation. That's why EGL kept the Tomlinson name when they bought that business from the RCR administrators.

7
Solvetheriddle
one year ago

@Bear77 fair enough. i like to know where various businesses have come from. usually i am not attracted to capital goods type businesses due to the difficulty of valuing lumpy businesses and possible difficulties making cted terms when constructing. the history of steady profits is reassuring in this case. any idea what % of EGL revenues are recurring? service type rev? the bigger the better , imo. EGL is coming up on my scans as a profitable trends micro thats why i had a closer look.

thnaks for the reply makes sense

btw many years ago i had a meeting with the RCR CEO, cant recall his name , he was ex UGL and was suing them (reciprocal as well) and he went off on this tangent rant that made me uneasy and lose any interest in the group. then it blew. ah the memories...

7
Bear77
one year ago

Yeah, his name was Dr. Paul Dalgleish - see here: CEO Paul Dalgleish and the collapse of RCR Tomlinson (afr.com)

He came across as very smart earlier on, but he clearly wasn't as smart as I thought he was. He later turned up at Tempo Australia (ASX:TPP), now called GreenHy2, (ASX:H2G), first as a consultant, and then as their CEO, now their MD, and their market cap is now down to just $7m. Apparently, their mission statement is now: "Bringing the 100% Renewable Solid State Hydrogen Storage solution to Customers". Never heard of them before a little digging today to find out what happened to Tempo. I'm sure Dr. Paul will continue to do well, either at H2G, or the next company he runs into the ground. By the time the bad news emerged from the RCR Board, he'd already quit, or been sacked, it was never entirely clear which, but one thing we do know is that he took a very generous golden handshake with him. He doesn't mind ducking out of the limelight and then emerging somewhere else and starting over. There's plenty of suckers out there, and I was obviously one of them as a former RCR shareholder.

I should mention, for clarity, that the "RCR" ticker code now belongs to "Rincon Resources Limited" and they have no connection at all to the RCR Tomlinson that we have been discussing here.

I did hear about the bad blood between UGL and Paul Dalgleish (he was at UGL before he went to run RCR Tomlinson) however UGL wasn't the best run company either - I did receive a small settlement in a class action lawsuit against UGL a few years ago over just one of their many alledged breaches of the continuous disclosure rules that the ASX has. They often led their shareholders down the garden path, giving them information which was clearly at odds with reality, when viewed with the benefits of hindsight. Dalgleish was only head of one department at UGL, he was the Chief Executive of UGL Infrastructure (UGLI) and was also at one time the MD of Montgomery Watson Constructors (Asia). His Doctorate was in Business.

In terms of how much of EGL's revenues are recurring, no, I don't know that, however I would imagine that it would be a significant proportion of their Tomlinson (Boilers) business due to their multi-year maintenance contracts, but that's just one division, and their other divisions are mostly centred around one-off engineering and installation contracts, with a servicing component and consumable sales to some/many of those customers as well, but the bulk of their revenue would be rather lumpy by nature. If I come across a breakdown of their revenue by type (one-off vs. recurring) I'll add it to this thread and tag you @Solvetheriddle

Personally, I don't mind companies with lumpy revenue, as long as they are growing revenue and earnings (on an annual basis). EGL is still clearly early stage, but the main two guys there built up "Tox Free Solutions" from nothing and then sold it to Cleanaway (CWY) for about $671 million ($3.425 per TOX share). EGL's current m/cap is only $73m today, so, like I said, early stage, however they have a nice suite of technologies that will assist with recycling waste (Turmec recycling plants), improving air quality, decreasing energy use, and removing harmful toxins from liquids such as water, and I reckon they've got tailwinds building that are going to provide an excellent operating environment for a business like theirs that is positioned for a greener future.

14
Solvetheriddle
one year ago

@Bear77 you are a font of knowledge, the UGL ceo Leupen ? was a peculiar one as well, imo. EGL does look interesting i will follow it, thanks

6
Bear77
one year ago

@Solvetheriddle Yes, Richard Leupen, didn't follow him, just had a brief "investment" in UGL a few years back just before a large guidance downgrade and started noting a pattern with them after that. Interestingly, Leupen's LinkedIn page STILL lists him as being the MD & CEO of UGL, but he clearly isn't - as their own website shows - Our leadership | About us | UGL Limited

UGL is of course now part of CIMIC Group, which used to be called Leighton Holdings, and we all know about their chequered history of sub-par governance...

7
Bear77
one year ago

Hi @Solvetheriddle - regarding recurring revenue within EGL, Jason Dixon talked about EGL Energy from around the 16 minute mark of yesterday's meeting with us here, and mentioned that over 50% of that division's revenue was recurring revenue through their servicing agreements with boiler owners, which he said was mostly in the medical and food space where they use steam for sanitising or eliminating pathogens. When I worked at Coca-Cola at Thebarton in Adelaide (which is now closed, Coke do no manufacturing now in South Australia) Tomlinson (EGL Energy) were servicing Coca-Cola's boiler regularly. They are the largest players in the Boiler servicing segment here in Australia.

If and when EGL breakdown their revenue by division, we can then conservatively assume that around half of that EGL Energy Revenue is recurring revenue, and that a smaller percentage of EGL Waste revenue is also recurring. Jason said that typically, servicing and spare parts/consumables run at about 6% annually of the initial capital costs of installing those Turmec world-class recycling plants. However, Turmec is an Irish company and EGL has the exclusive Australian Agency agreement with Turmec, so most of the revenue from those plants goes to Turmec in Ireland, and EGL get a percentage of all sales plus it gets EGL in the door to supply products and services from all of their other divisions as Jason explained. Obviously the labour component of revenue for EGL Waste is 100% EGL, but the actual Turmec equipment, spares and consumables is like 98% Turmec, 2% EGL, or something like that. I'm only part way through watching yesterday's meeting video, so expect Jason might clarify that % number at some point as I watch on, but I thought I'd add this note to our previous forum thread before I forget.

13
Solvetheriddle
one year ago

@Bear77 thnaks for that, actually that was my q, couldnt miss the chance. 6% of what ? how much do they cost i was intersted in knowing, but also good point you make about Turmec getting the lions share anyway. a lot of moving parts for a small company. the CEO came across well imo. notice the hose down for FY23 result, maybe an oppty? i will continue to watch it.

11
Bear77
one year ago

@Solvetheriddle - Jason said - at the 26:40 mark - that the plants that EGL Waste is tendering for (their tender pipeline) is around $110m, and that the average value of each waste processing plant is around $20m, so the spare parts/consumables and servicing revenue from each one of those (that they win, i.e. where their tender is successful) is around 6% of $20m, per annum, so we're talking annual recurring revenue on each plant of circa $1.2m approx. That's just the recurring revenue from EGL Waste. EGL Energy is over 50% of all revenue being ARR. Jason makes it clear that he believes strongly in the value of signing customers up to ongoing service agreements for ALL of the installations they do, including TAPC, Baltec IES and EGL Water.

It's still going to be difficult to try to calculate EGL's ARR however, because they don't split out their revenue by division as far as I know. Other than EGL Energy (Tomlinson), where it is around half, it would be safe to assume that ARR is unlikely to be much over 6% of total revenue of all of their other divisions, and likely to be a little lower than 6% because they aren't going to sign up EVERY customer to a multi-year servicing agreement.

Regardless of ARR levels, I'm bullish on EGL, and I hold them both here and IRL because they've got tailwinds that are only going to increase. They're in the right areas at the right time, and they are growing at a good clip, as a group, both organically and via acquisitions. There's a lot to like.

They're also small, and relatively unknown, which is where a fair bit of market mispricing can often be found.

12
Solvetheriddle
one year ago

@Bear77 thanks for the reply, very helpful. JD seemed quite aware of building a sustainable earnings stream, which of course will be quite valuable. 4X GP is reasonable price. imo. ill watch the next result with interst.

7