@Bear77 and @Strawman agree on the result , very solid.

Not sure if there some disappointment that a dividend wasn't paid to put the icing on the cake ?

I expected a further lift today but EGL share price has gone up 30% in the past 3months.

There seems to be so many ways they are set to win which very attractive as a shareholder (see below).

Just to add some icing on the cake nice upgrade moving forward .

Disc Held in RL

Yeah @wtsimis and @Strawman EGL was down a cent early on and closed flat today (unchanged from yesterday), so they held on to recent gains. They released their results Presentation this morning before the market opened: 1H FY24 Financial Results Investor Presentation - note: that one has the ASX's "ersonal use only" stamped up the left side of every slide (supposed to read "For Personal Use Only" but they missed the first part) - it hasn't been uploaded to EGL's website yet, but when it is, you'll be able to download it directly from here: The Environmental Group Limited - Announcements

Plain text: https://www.environmental.com.au/investors/announcements#presentations

...without the ASX's "ersonal use only" watermark on each slide.

@wtsimis has provided slide 9 (above in this forum thread) from that Presso today - which is one of the better ones. For people interested in the breakdown of revenue and earnings across those divisions, slides 10 through to 29 go into a good deal of depth on that stuff and those slides includes segment overviews, commentary, and in some cases also key products that they sell. They also include Revenue, EBITDA, and margins where applicable, for each segment.

Here's some other slides from the presso:

I won't get into the value of "underlying" metrics, but at least you can see at a glance which items are being ignored (or deducted) to reach those numbers (explained in the note near the bottom of the final slide above).

If EGL can keep underpromising and overdelivering, as exemplified by multiple earnings guidance upgrades throughout the financial year, then they're ticking another box for me, and they already had a few ticked. Good little business this one!

Hi @Bear77 thanks for the comprehensive summary. EGL is a company I have been very interested in and of course who doesn’t like a profitable small cap.

They have work to do in tidying up their presentations and making things clearer but it’s exciting and to be honest there would be few sub 100m MC operations in their position.

I am very excited by the service revenue growth 64% and with high margins.

From what I can see revenue was basically flat (?) in the existing businesses with full year airtight revenue figures and increased servicing revenue across divisions providing the bump in revenue.

Is this a result of disruption in their ability to source equipment in the first half of 2023?

It seems the waste unit was particularly impacted with revenue down from 2.2 to 0.5m. A little concerning in an area where the projected TAM is in the billions.

Consequently, it seems the increase in NPAT was mainly a result of significant cost reductions due to normalisation of operation costs in the 2nd half of the year?

Is this your take?

Secondly, I was wondering what your thoughts were on the issue of employee expenses up 67% from 3,305,451 to 5,519,696? A significant jump.

I like what’s on offer here and am looking at an entry as it seems it’s trading on a FY PE of 25 if HY NPAT is annualised. However, I think that’s ok and I am happy to start a position as I can see how profit could grow rapidly.

So I am just after clearing up a few concerns. As always your opinion is highly valued. Thank you

Hi @NewbieHK - I reckon you've summed things up reasonably well there with EGL. The servicing revenue, as I have said before, is a focus that Jason Dixon and Paul Gaskett brought across with them from their time at ToxFree Solutions (the company they built up that was taken over by Cleanaway). Jason said in his interview with Andrew here that he really wants to incorporate servicing into every sale wherever possible to tap into that recurring revenue stream that he knows is there. It was one of the things I really liked about the company and Jason Dixon as a manager. It is therefore not surprising to see that servicing revenue increasing because he's got people across the company focusing on that.

A lot of the waste division revenue, especially the Turmec recycling plant revenue, is going to be lumpy and go up and down from year to year because of the nature of the work - mostly one-off engineering, supply and installation, plus commissioning. Large state-of-the-art recycling plants, which is Turmec's specialty area, are fairly niche, but EGL do a lot of other stuff in waste as well as the Turmec agency - they get a 2% commission I think on all Turmec gear, including consumables.

EGL Waste Revenue was down from $2.2m to half a mil ($0.5m) for the half, but the EBITDA on that half a mil was $0.3m vs $0.1m in the pcp, so they actually increased earnings on a lot less revenue.

Baltec IES revenue was up a little - from $10.5m to $10.7m, but the EBIT on that revenue went from $0.6m to $1.6m (+153.6%). Their Baltec EBIT Margin also increased from 6% to 14.9%. [slide 11 of their H1 of FY24 Financial Results Investor Presentation]

EGL Energy (Tomlinson) Revenue was down slightly (-1.7%), but EBITDA was up +49.3% (from $1.8m to $2.7m) and their EBITDA Margin improved from 9.6% to 14.6%.

In EGL Clean Air, Revenue, EBIT and EBIT margin were all down a little, but their EBIT margin is still 15.3%, the best of all of their divisions (I note that EGL Waste EBIT/EBITDA margins were not disclosed/highlighted for this half). Airtight was being integrated into Clean Air also during the half, so that may have affected numbers.

EGL Water is not cashflow positive yet, it's an emerging division, I refer to it as their powerball upside - nice if it comes off but I'm not counting on it.

The story with EGL is of a turnaround. The business was not performing well before Jason and Paul came across and Jason took over as CEO. EGL had work, but the company and its divisions were not well structured and barely profitable a lot of the time. Jason has whipped them into shape since he took on the CEO role. Paul, as their National Sales and Marketing Manager, has ensured that they are chasing the right type of work, profitable work, and they are both focused on recurring revenue through locking in servicing contracts with all new equipment and plant sales whenever they can.

In August 2023, they also added Michael Constable as an Independent Non-Executive Director and Chair of the Audit & Risk Committee - replacing Adrian Siah. Michael is a Chartered Accountant who has had senior Executive Finance roles within Nylex and Programmed Groups and was CFO of Tox Free Solutions Ltd for over 10 years before its sale to Cleanaway in 2018. Michael was also CFO of Millennium Services Group Ltd for 4 years which is a $250M turnover, 5,000 staff contracting business. (See here: Board-Update.PDF - 23-Aug-2023) - so now Jason, Paul and Michael are all ex-TOX, and are all now at EGL.

During this transition (the turnaround of EGL from a poor business previously to now becoming a great little business), we will see plenty of margin improvement - as borne out in their H1 numbers - but there will be some rationalisation of revenue - in other words, they are not going to keep chasing low margin work, because that's not good business. As a result I'm not too bothered to see half-on-half revenue reductions across their divisions when we are seeing these leaps and bounds in margin improvements and bottom line improvements. It's exactly what I was hoping to see.

Once they get the business operating as they want it, we'll see revenue growth, but for now it's all about the turnaround, and that means focusing on costs and also on the type of work that they want to chase - decent to high margin work, not low margin work.

The top line (revenue) growth for the half appears to have come mostly from the Airtight Solutions acquisition, but it's the bottom line growth that excites me most about this business. Now that they have a great management team, they are going to do great things. The organic top line revenue growth will come.

In terms of the employee expenses being up +67%, I would expect that employee expenses would have increased due to the Airtight acquisition - that would be part of it but not all of it - because they took on all of the employees of Airtight when they acquired the company - and this increase is over the past 12 months - because the pcp for H1 of FY2024 is H1 of FY2023, so the six months ending Dec 31, 2022. And now we are comparing that to the six months ending Dec 31, 2023, so one year later, and I believe that Jason is one of those managers that knows that you get what you pay for, so if you pay peanuts, you get monkeys, so he's likely to be increasing remuneration across the business but linking it to productivity or margin improvements (EBITDA improvements) to drive that cost-out ("lean") focus through the business.

I'm not worried about increasing employee expenses when I see margin improvements and growing EPS. You have to incentivise people to get with the program and to be team players. It's also a reasonably tight labour market with low unemployment, so when you have good people who know what they're doing, you don't want them to leave the business and take that expertise and knowledge with them. So fair remuneration is important. We may have seen some adjustments there that may be more one-off than recurring - in terms of the percentage increases in employee expenses. But, again, that's an area that's absolutely worth investing in to get those bottom line improvements and to keep key people in the business.

Hope that helps.

@Bear77 I appreciate the time you took to respond. It’s helped answer my questions. The part about increasing margins with a focus on quality revenue makes sense. It’s a business with potential and it’s clear Jason and Paul have turned this company around.

19-March-2024: EGL hit a new 52-week high of 29 cps today @NewbieHK - looks like they're garnering some interest somewhere in the market.

Early days, but nothing wrong with the investment thesis at this point. Playing out nicely so far.

@Bear77 Yes seems I may have entered in at a good time. I was able to get to 50% of my desired holdings but got a little greedy fighting for pips. I mindful of @Strawman comment of putting a meaningful amount in for it to have an impact. Something I have done the last 12-18m and it’s made a significant impact on my returns.

I am looking for this to be a good long term play if as you say they can get the house in order and maximise margins before expanding the revenue chase. I would not be surprised to see this well into the 30s with a couple of quarters of positive progression.