EGL results released on the 20th Aug has provided me with concern and optimism.

Concern.

As @Slideup , @mikebrisy , @Bear77 eluded to there are question marks on the transparency of the cost overruns in Singapore and the notion that they are one off. Adding the acquisitions undertaken over Jason Dixon's reign and questions of competency are fair to ask.

I would also add the renumeration and focus on EBITDA as the financial metric in which is featured heavily throughout the rem report / annual report and it puts into question how shareholders are being prioritised ?

A good current comparison to EGL is Stealth Group under the leadership of Mike Arnold . The transparency and alignment from Chairman to Mike and the leadership team is evident and consistent with the reports produced. The focus on profitability is consistent and thus the EPS and FCF have improved markedly. Its little wonder the share price performance has 5-6x over the past 18months.

Based on what EGL released and guided for i am holding my position with a positive frame of mind.

Optimism looking forward.

Guidance by Jason for FY26 is EBITDA to come in at 15-20% higher than 2025 or in a range of 12.76m to 13.32m. Allowing for a 6% increase in SOI to 396m this would translate to a EPS of between 1.38c - 1.44c or 12%-17% increase.

Scenario 1.

Examining the FY25 results they were mixed but what stood out was the H2 improvement versus H1.

H1 saw revenue of 54.2m and a EBITDA of 3.9m or 7.19%

H2 saw revenue of 57.7m or 6.4% higher however EBITDA was 7.2m or 12.47%.

If i reading the commentary correctly this is a 73.5% uplift in H2 EBITDA compared with H1.

If this was simply replicated for the FY 2026 assuming a 10% lift in revenue to $123m EBITDA would be 15.33m or 38% higher than 2025.

Allowing for a 6% increase in SOI to 396m (which has been the average increase over the past 3 years) EPS would increase 1.66c or 32%.

If these results were to flow through the current SP reflecting 21x 2025 EPS is attractive. A 21 PE multiple on a 1.66c EPS = 35-36c SP.

Scenario 2.

Looking divisionally on how EGL 2025 results unfolded and what we can be reasonably be expected for 2026 based on the guidance and trend underway this scenario also dwarfs the EBITDA guidance Jason Dixon provided.

EGL Air - revenue to remain flat at 19.4m for FY26 and EBITDA to come in at 9% = $1.74m.

EGL Energy - revenue to climb 15% to 56.5m and EBITDA margins to equal 2025 @ 13.7% = $7.74m

EGL Baltic - revenue to rise 10% to 38.6m and EBITDA to rise to 15% from 10.8% in FY25 reflecting the cost overruns in Singapore . EBITDA to come in at $5.79m

EGL waste - revenue to rise 20% on 2025 to 4.16m and EBITDA margins to hold at 45% = $1.87m

Group results would see revenue rise to $118.66m or 6% (which is modest) and EBITDA rise to $17.14m or 54%. This reflects the operating leverage obtained in scaling up and anticipated sound executing on any implementation work .

(this is optimistic but not out of the realm of realistic)

Translating this to NPAT at past three years margins equates to 7.37m and EPS of 1.86c which is a 51% increase.

At a 21 PE = 39c.

Disc : Held IRL & SM

20-Aug-2025: Having been through EGL's FY25 results (Appendix 4E, 20/08/2025 – Annual Report to Shareholders, FY25 Financial Results Presentation) - I saw a few orange flags there, particularly the precipitous drop-off of their Clean Air division EBITDA (-50.9% yoy) which they are blaming on challenging lithium markets - I would hope that division has a much broader addressable market than just the lithium sector.

We know about their cost blow-out with Baltec IES, but a -19.1% EBITDA decline on the back of a +31.9% increase in revenue in Baltec means a major margin compression there.

EGL Energy was good, and EGL Waste was terrific to finally see some traction there after bugger all happening there in prior years, however I also took note of @Wini's comments about their declining cash balance (they have no cash now) and 20% of their revenue sitting as work in progress not aligning with what management are saying: that over 50% of revenue is now recurring maintenance.

"This feels like aggressive revenue recognition to me, overstating earnings through the P&L."

See Wini's post on EGL here: https://strawman.com/forums/topic/10752#post-37413

This looks interesting to me:

Revenue growth but payments to suppliers and employees was greater than total receipts from customers resulting in a $3.8m loss from operating activities vs a $4.2m profit the previous year.

Also they had a negative cash position at June 30 vs over $10m in the bank the previous year. So they will likely need to raise money to shore up their balance sheet. Or at least that's how it looks to me.

I prefer companies of this small size to be in a net cash position and EGL are no longer in that position.

I sold all of my remaining EGL @ $0.27 this arvo and was considering doing the same here, but would have only got $0.255 here because that's where they closed. I think EGL has a good story and will likely be worth substantially more in future years, but my faith in their management has diminished today, so I moved to the sidelines IRL and will likely do the same here this week also. I think there are better opportunities out there for that capital at this point in time, and too many unknowns and eventualities that could drive the EGL SP back down in the near term, in my opinion.

Perhaps teething problems, but also perhaps aggressive revenue recognition to inflate yoy comps, and while I do see over $4m spent on a business purchase (in the table above), I think it was a mistake to rely on the use of an overdraft to do that rather than to raise capital including via issuing new shares. I can only think they thought their share price was too low and they wanted a higher share price before announcing a CR.

Anyway, sidelines for me with EGL and my real money portfolios, and likely also here on SM shortly.

And the margin compression in some sectors is a concern too for a business that was apparently so focused on maintaining margins and not taking on any work that might rely in losses or low profit margins. Thats what Jason Dixon was saying in his meetings with us here but I don't see that in these results across their various divisions.

That said, now that I'm out of EGL, their EGL Waste business will probably shoot the compnay to the moon.

31-March-2025: EGL-to-Acquire-Advanced-Boilers-and-Combustion-Pty-Ltd.PDF

Plus Investor Presentation.PDF

This looks like a great bolt-on acquisition to me, paying just $5.5 million using existing cash resources, and very complimentary to EGL's Tomlinson Energy business which already installs and services boilers.

Other points:

• Advanced has expertise in fabrication, boiler fit out, economisers, pipe welding, skid manufacture and control panels, broadening EGL current capability;
• Advanced own exclusive intellectual property rights to Maxitherm boiler technology which is particularly relevant to larger industrial uses and complement EGL’s existing range of boilers;
• Advanced reported FY24 revenue of $16.0 million and normalised EBITDA of $1.6 million;
• Approximately 60% of Advanced’s revenue is service revenue, which is recurring in nature aligning with EGL’s strategic growth plans; and
• Fast execution: Expected completion date is 5 April 2025 (five days after today's announcement).

Disc: Holding, both here and IRL.

P.S. Market likes it.