EGL reported its annual results today .

Revenue grew 18% to just under $100M and EBITDA increased 51% with margins rising from 8.1 to 10.3%. This is largely due to the increase in recurrent (service) revenue which is higher margin than sales and pure engineering. Reading the results and listening to the Company Webcast with its executives today, I can summarise the progress of the Company as follows:

1. Growth of the Company towards a full-service waste management enterprise. To this end, EGL now provides recycling and waste management plants (Turmec) and on-sells noise, gas, dust and odour and groundwater cleaning technologies to complement the waste plant. Waste management is a $9B industry in Australia and EGL has barely scraped the surface. Cleanaway and Visy are major players but lack the the full waste management technology like dust control and water management.
2. Jason and Paul's overarching strategy is to grow their brand strongly and to become recognized and sought after by 'best in class' global equipment providers in the waste industry. This is already evident by their contracts with Turmec, Kadant PAAL and Fulton. They have recently been approached by GBM, a fabricator of exchangers, separators and filters out of Italy. This adds to the profile of EGL and creates a snowball effect by further increasing their presence in this sector.
3. Baltec is profiting from the trend towards gas turbines that turn on-and-off when needed for surge power. This increases the engineering complexity because exhaust gases at high pressure and flow are generated. Noise is also a factor. Baltec has developed a reputation for its engineering excellence in this field. Revenue increased 34 % last year and 90% was derived offshore.
4. The Company is also supplying autoclaves for medical waste. Fulton was previously represented in Australia and was doing $12-$14M in turnover p.a. This has now fallen to $2-3M. Jason expects it can rise back to $6-$8M. Fulton sells electric boilers for lighter commercial use which are cheaper to buy and to operate. The units are better for EGL too. Margins are 30% better than the gas boilers.
5. EGL water is still waiting for EPA approval in Victoria. Frustratingly this has delayed commercialisation of their water treatment plants. They are in discussion with ground water treatment companies in the USA and in Europe. This could open a royalties stream if the technology is licensed and fulfills its potential.
6. 'Dry gas' treatment by TAPC and Airtight (acquired in 2023 by EGL) have not added much to the bottom line. My impression is that Airtight has not performed to expectation and has suffered from operational and organisational problems which will require further work (and capital) to integrate successfully. There has also been a slow down in the joinery industry which is expected to recover. The Company also plans to sell ammonia scrubbers.

EGL is a different Company from the one that I have suffered with since I first became a shareholder in 2006. A sound business strategy and an aspiration to become recognised and respected in the waste management industry is starting to gain traction. My feeling is that that Jason has now set the trajectory and he will try to grow the Company organically in any way that he can. A trend towards recurring revenue may seem less exciting than selling multi-million dollar lithium air scrubbers. Having seen many up and down years for Baltec and TAPC and no baseline growth I can tell you that lumpy earnings from 'sexy' engineering projects does shareholders no good. Engineering does play a role in developing IP for the Company. This has monetary value, not just by increasing the value of the Company but also by increasing margins. This Company has always had outstanding engineering but, being run by engineers and not business people, has tendered for low-margin high-risk projects that looked good on paper but were unprofitable. Jason's ingress into EGL has finally given the Company the traction that it so desperately needed, and is the reason that I introduced EGL to Strawman investors 3 years ago.

Revenue expansion, growth in the value of the Company through brand recognition and IP, potential growth through licensing of its water technology and recruitment of new global waste management suppliers, all hold promise for investors. The Company has enough working capital to fund more growth but acquistions like Airtight, though they may excite the market, are not necessarily the best strategy.

Based on a net profit of $4.4Mil the Company is overvalued at P/E 38. I tend to disregard traditional metrics in growth companies and focus on the underlying growth story and the addressable market. In light of my comments above I am comfortable holding EGL on SM and in real life.