13-May-2024: EGL-Secures-New-National-Distribution-Agreement.PDF
Bottom left to top right. Tick.
Solid company, good management, profitable, growing, small enough to be underappreciated and underpriced by the market. Tick.
Disclosure: I hold EGL shares both here and in my largest real money portfolio.
Their website: Home - The Environmental Group Limited
Their website has had an overdue makeover. Not bad.
02-May-2024: Two new "Subs" notices today, from Challenger and Greencape Capital, but Greencape is considered a controlled entity of Challenger (which is why Greencape Capital appears on the second page of Appendix 2 of Challenger's notice - the first link below) so it's the same 5.01% position, not two different ones:
Becoming-a-substantial-holder-for-EGL-from-Challenger.PDF
Becoming-a-substantial-holder-of-EGL-from-Greencape-Capital.PDF
They have been moving above and below 5% of EGL for a while now...
They became Subs (with 5.53%) last year at the end of August then sold down to either 0% or close to 0% by my calculations (as 20,253,269 EGL shares was around 5.42% of EGL's shares on issue at that time) in March (12th) this year and now they're back in with 5.01% (18,724,807 EGL shares) as from 30-April-2024.
The other subs there are Jason Dixon (JALIE 2), their CEO, and Ellis & Denise Richardson who were the founders and vendors of Baltec IES which was acquired by EGL some years back, and the Richardsons received EGL shares as part of that acquisition. Harley Grosser's Capital H Management is the largest shareholder there with 10.4%, just ahead of the 10.38% held by the Richardsons, which I'm assuming is the same 10.38%, not two lots of 10.38%, as it is common for mirror notices to be lodged for the same holding, such as the mirror notice lodged today by Challenger because Greencape is considered a controlled entity of Challenger.
EGL was down half a cent (or -1.82%) today however that was on just 12 trades which all together added up to just under $11.3K - only 42,014 EGL shares changed hands today. So not a lot of liquidity with this one. Market cap of just $102m, so a real microcap. However, I'm an EGL shareholder both here and in my largest real money portfolio, and doing well with EGL so far. I'm happy with the company's progress - Jason and Paul have certainly turned it around and got everyone focused on locking in recurring revenue maintenance contracts with everything they sell, whenever they can, and they also appear to be focusing on maintaining decent margins so being more choosy with targeting certain types of work to chase and avoiding low margin or zero-margin work. One of the reasons this business performed so poorly in prior years (before Jason Dixon and Paul Gaskett came over to run it) is that they weren't sufficiently focused on margins and they often lost money on contracts.
The Turmec agency doesn't seem to have generated much work for them since they took it on, but it is relatively low margin work anyway - I think the Turmec agency is a 2% clip-the-ticket on all Turmec sales into Australia, but there are supposed to be cross-selling opportunities that come with these state-of-the-art recycling plants that Turmec specialises in. When they sell some.
Meanwhile most of the other divisions appear to be firing for EGL, except for EGL Water, which is just passed the proof-of-concept stage really, in terms of PFAS removal, well, it's been commercialised but people aren't exactly bashing their door down to get hold of that tech just yet. I regard EGL Water as the Powerball upside - nice if it happens but my investment thesis isn't factoring it in. Yet. The rest of the divisions are travelling OK, and showing margin improvements for the most part, as we've commented on here before when analysing their H1 results. This is one where I'm backing the management, based on what they achieved at TOX (Tox-Free Solutions, bought by Cleanaway), and on the interview that Andrew had with Jason a couple of years back where he impressed me in terms of knowing the business well even though he had only been there a relatively short time. He was also saying the things I wanted to hear in terms of his focus and priorities, so I paid attention and then did further research and then bought some.
Anyway, gone past midnight, got to grab some ZZZs now.
05-Nov-2023:
The Environmental Group (EGL) is a top 10 position for me both here on Strawman.com and in real life. EGL did move higher within my top 10 list during recent months (in August and September) because their share price got up to between 26 and 28 cps, and while it did drop back to 22 cps at the end of October (and finished Friday at 21.5 cps) - they’re still in my top 10 (both here and IRL) in terms of market value of the respective positions.
EGL are a microcap company – their market cap is currently just $82 million – so their SP will move up on positive announcements and drift lower when there’s no news coz some people will sell out and move on, looking for the next hot stock. They had a very good FY23 full year report in August, hence their SP rise, and there hasn’t been any price sensitive news from them since then, so they’ve retraced as a number of people who jumped on them in August have jumped back off again.
I first became interested in EGL when they appointed Jason Dixon as their new CEO in Feb, 2021. Jason and EGL’s National Sales and Marketing Manager, Paul Gaskett, were instrumental in building up Tox Free Solutions which was acquired by Cleanaway (CWY) in 2018 for an Enterprise Value of $831m. Tox Free was at that time one of Australia’s leading Waste Management and Environmental Solutions companies with over 1,500 staff and an annual turnover of approximately $500m. You can read more about Jason here: EGL: 08-Feb-2021: Appointment of CEO – Mr Jason Dixon.
And more on both of them here: https://www.environmental.com.au/about-egl/executive-team
Also, Jason Dixon has done two interviews with Andrew here on Strawman.com, which you can find here: Strawman: Meetings with company CEO's
[Those meeting dates were 19th of June, 2023, and way back on October 8th, 2021, about the fourth meeting in, when the whole "CEO Meetings" idea first kicked off here.]
Jason and Paul had the Australian agency agreement for Turmec, an Irish company that is the global leader in state-of-the-art waste recycling plants, and they bought that agency with them and incorporated it into the EGL Business when they joined EGL. This came about because Turmec repatriated all of their Irish employees who were working in Australia back to Ireland when Covid-19 started to become a serious issue in 2020, and Turmec wanted people they could trust to be their Australian agents for all new Turmec business and also for ongoing consumables sales and service to their existing Australian customers. My understanding is that Turmec knew Jason and Paul from Tox Free and were happy to award that agency agreement to them (to be their agents here in Australia). However, while the Turmec agency is an important part, it is only one part of the EGL Business.
Turmec sits within EGL Waste Services, referred to in their recent presentations as EGL Waste, whose main activities involve the design, construction, commissioning, and maintenance of waste treatment plants, specialising in waste recycling plants where Turmec are the world leaders. EGL Waste also do a lot of Air Control systems, especially dust control, which is where TAPC and Airtight Solutions get involved (see below).
EGL also have Baltec IES (Inlet & Exhaust Systems) which provides a broad range of products and services to the gas turbine power industry to reduce emissions and noise, and to improve efficiency, such as gas turbine inlet filtration systems (filter houses), inlet cooling/fogging systems, acoustical components, expansion joints and complete exhaust systems with guillotine and diverter dampers.
Then there is Total Air Pollution Control (TAPC), Australia’s largest full-service air pollution control company, headquartered in Wollongong, NSW, with branches in Perth, Sydney, Melbourne, Brisbane, Singapore and Manila. TAPC supplies a complete range of products and services for the removal of pollutants from industrial gas and air streams, installing, maintaining and repairing a vast range of industrial air pollution control devices. TAPC serves more than 100 industry groups across Australia, New Zealand, South-East Asia and the Pacific.
EGL’s most recent acquisition was a company called Airtight Solutions, which has now been combined with TAPC (see above) to form EGL Clean Air, but is currently listed on their website as a separate business unit. This acquisition has expanded their market share, added new customers (which allows for cross-selling of their other services), and enhanced their product range in Air Filtration, Purification and Air Pollution Control systems.
Next is Tomlinson Energy Service, which EGL are now calling EGL Energy (in their latest presentations), which was the old Tomlinson business that was part of RCR Tomlinson before Paul Dalgleish blew up RCR by driving it in a new direction they knew very little (or clearly not enough) about – Solar Farm Construction. EGL bought the Tomlinson business very cheaply from the RCR Administrators and it has been providing baseline recurring revenue for EGL ever since via regular scheduled maintenance of industrial Steam Boilers, large commercial Hot Water Heaters and Boilers, Thermal Oil Heaters, Package Burners and Biomass Steam and Hot Water Generators – throughout Australia – which they also supply, install and commission.
One thing that Jason and Paul have brought to EGL is a focus on parcelling ongoing maintenance contracts with their design, supply and install contracts wherever they can, across all of their business units, because they understand the value of baseline recurring revenue. Tomlinson were always doing this, but EGL now do this across their other divisions also.
Finally, there is EGL Water, which is about removing dangerous and/or harmful contaminants from water, and their main focus has been on PFAS removal. PFAS, or per- and polyfluoroalkyl substances, is a group of over 4000 chemicals. Some PFAS are very effective at resisting heat, stains, grease and water, making them useful chemicals for a range of applications including:
- Stain and water protection for carpets, fabric, furniture and apparel;
- Paper coating (including for some food packaging);
- Metal plating (including Teflon coatings on frypans, saucepans and other cookware);
- Photographic materials;
- Aviation hydraulic fluid;
- Cosmetics and sunscreens; and
- Medical devices.
Because they are heat resistant and film-forming in water, some PFAS have also been used as very effective ingredients in fire-fighting foams.
In Australia, the historical use of PFAS in fire-fighting foams has resulted in increased levels being detected at sites like airports, Defence bases, and other sites where fire-fighting training has been conducted (which has prompted some recent payouts and also money has been allocated by the government for future payments to people who were exposed to PFAS through fire-fighting foam use on Australian Defence Force bases), or where fire suppression systems are installed for extinguishing liquid-fuel fires. Increased environmental levels of PFAS have also been found near some industrial areas, effluent outfalls and landfill sites.
Unfortunately, the properties that make some PFAS useful in many industrial applications and particularly in fire-fighting foams, also make them problematic in the environment. The PFAS of greatest concern are highly mobile in water, which means they travel long distances from their source-point; they do not fully break down naturally in the environment; and they are toxic to a range of animals.
While understanding about the human health effects of long-term PFAS exposure is still developing, there is global concern about the persistence and mobility of these chemicals in the environment. Many countries have discontinued, or are progressively phasing out, their use. The Australian Government has worked since 2002 to reduce the use of certain PFAS.
Source: https://www.pfas.gov.au/about-pfas/substances
See also: https://www.pfas.gov.au/about-pfas/affects and: https://www.pfas.gov.au/
EGL have their own dedicated website for their EGL Water division: https://eglwater.com.au/
That site provides links to other sites (such as the Australian government site linked to above) where you can find more information about PFAS and what is being done to try to phase out its use, reduce exposure to it, and remove it from contaminated water and soil.
EGL Water have partnered with Victoria University’s Institute for Sustainability and Innovation, which has spent months testing the efficacy of their new pioneering technology. Researchers have found an 87% reliable reduction in PFAS-contaminated water. This ground-breaking result signals the technology’s major potential for cost-effectively removing PFAS from the environment.
Source: https://eglwater.com.au/
Here are some links to announcements from EGL this year regarding their EGL Water division:
14-Feb-2023: MOU with 374Water Systems, Inc.
23-Feb-2023: EGL Water - Successful Commercial PFAS Results
08-Jun-2023: EGL Water PFAS Separation Plant Sale
And here’s a link to their August presentation that accompanied their FY23 Full Year Results:
24-Aug-2023: EGL Results Presentation
In that August Presentation (on slide 28) they mention that recent successful class action law suits have highlighted increased awareness and the urgent need to find solutions to remove PFAS contamination in water, soil, landfills, farmland and housing estates.
So there you have it - in no particular order - the 5 businesses within (or divisions of) The Environmental Group (EGL):
EGL is still a relatively small company that the Australian sharemarket is currently valuing as being worth less than $100m in total (currently $82m based on a 21.5 cps SP), and most investors either haven’t heard of them or do not follow them, so they have a long runway of growth ahead of them in my opinion, and the true value of the company is not yet being adequately reflected in their share price - again, in my opinion.
Also, as their name suggests, what they do is generally positive for our environment.
I bought our initial (real life) tranche of EGL at 14.5 cps in October 2021, not long after that first CEO meeting that Andrew had here with Jason Dixon, then I added more at 18 cps in December 2021, then more at 20 cps in May this year. Our average price paid has been 16.7 cps. They’ve been as high as 34 cps in Jan, 2022, got back up to 28 cps in September this year, and they finished October at 22 cps. It is my view that even when they were up at 34 cps very briefly in January of last year, they were still not trading anywhere near fair value due to the years of growth they have ahead of them, if they are not acquired (at a decent premium) by a bigger player before then.
And that's without factoring in the "Powerball" nature of their PFAS removal tech within EGL Water, which has an addressable market in the billions. I am currently not expecting too much from that business because I am aware that there are multiple players in that space, and there are no guarantees that EGL's PFAS-removal tech is going to win out and earn them significant market share compared to the other (mostly much bigger) players in that space. EGL have only made one commercial sale of a PFAS-Separation Plant - so far (link above). So I'm certainly hoping for a lot of success from EGL in PFAS removal in future years, but I'm not counting on it.
My bullishness on EGL is really just based on their other 4 divisions - and if EGL Water hits it out of the park then that will be plenty of welcome icing on the cake.
I'm not going to do a heap of graphs of revenue, profits, margins, etc., because this is a business that has relatively new management that is turning the business around (the business had NOT performed well before Jason and Paul joined the company in 2021), and it's still relatively early days in that turnaround, however based on what Jason and Paul did at Tox Free and what I have seen so far with EGL, I'm definitely onboard with this one.
Source: https://www.environmental.com.au/egl-subsidiaries/egl-waste-services
Disclosure: Yes, I do hold EGL shares.
17-July-2023: FY23-Trading-Update.PDF
Nice!!
Good work guys!! Keep it up!!!
Disclosure: I hold EGL shares both here and IRL.
08-June-2023: EGL-Water-PFAS-Separation-Plant-Sale.PDF
Positive. I hold EGL shares both here and IRL.
I have regarded their EGL Water division as the "powerball" upside that would be great if it happens, but I didn't factor the successful commercialisation of their PFAS separation and removal tech (i.e. EGL Water) as part of my investment thesis. I believed they were a good investment without it. And if it works, at scale, and in an economically viable way, then great! For clarity, they knew what they had worked; the tricky part was getting it to work at scale for a price that would be marketable. Their PFAS tech is good, and unique, however there are alternative PFAS removal technologies being worked on by other companies, so it's far from clear who is going to end up with the lion's share of the market.
The market is of course huge. Here is a recent news article which demonstrates what a problem PFAS has been just on Australian defence sites: Commonwealth settles $132.7 million class action over PFAS contamination across Australia - ABC News [15 May 2023]
See also: Mick Tisbury's 12-year fight to protect firefighters from PFAS toxic foam contamination - ABC News [04 Oct 2022]
Like I said, EGL has plenty of upside aside from their EGL Water division, but this announcement of their first commercial sale of a PFAS Separation Plant (which is what EGL Water is all about) is very positive news.
20-July-2022: EGL-Water-PFAS-progress-update.PDF
EGL are a decent business, and growing, and if they can successfully commercialise this PFAS separation and removal process at scale, there is a LOT of upside. That success would mean that it would be a cost-effective option for clients and that EGL Water would be making a decent profit margin on it. That's the success we would like to see occur. I imagine that if they get to that point they could well be also looking at licensing their IP to other companies overseas, so allowing other companies globally to use their tech, which would mean ongoing passive revenue as well.
Plenty of "IFs" there, but that's the Powerball upside with EGL. They're a decent company without that additional success, but if EGL Water is ultimately successful in addition to their other 4 divisions, that would elevate the investment upside to a whole new level. This update from EGL is another positive in that it keeps us informed about their progress, and reassures us that there IS progress.
Disclosure: I hold a moderate position in EGL in real life, and also in my Strawman portfolio. It's not one of my smallest positions and certainly not one of my largest either, but I have exposure. I bought in to EGL the week that their CEO, Jason Dixon, was interviewed here by Andrew. Impressive opportunity IMO, and I'm already well up from my purchase price (14.5c/share in October), and they have run as high as 38c/share (in January) in intraday trading and they've closed as high as 34c/share (on Jan 1st). Today EGL are up +10% (+2c) to 22c/share at midday on the back of this update.
One week ago, they provided a trading update regarding their FY22 results and outlook: EGL-Trading-Update.PDF
That was also positive.
I admire what Jason Dixon and Paul Gaskett did with Tox Free Solutions, building that company up until it was acquired by Cleanaway (CWY). I'm onboard with EGL to see what they can do with this company now.
The Environmental Group Limited - Executive Team
The Environmental Group Limited - Home
The Turmec ("clip the ticket") exclusive agency agreement is also a big positive for EGL. There's a lot to like about this company. They don't have a huge number of runs on the board yet, but they are starting to build a good innings. I think they can go with it.
EGL has given a strong update this morning with the headline being an over 30% increase in EBITDA vs FY21, well above their stated goal of 15% growth in EBITDA. The growth appears to be relatively widespread across their business units. Other recent announcements lend weight to the thesis that their growth is likely to continue and not just a one off. CEO Jason Dixon spoke to Strawman members last year and you'll find his preso on the Meetings page. This is one I'm happy to ride for the time being.
It was a pretty sweet announcement from EGL today that they've secured their first agreement under the Turmec agency agreement. The numbers themselves are quite large at over $50m but more importantly it represents validation that the technology has real value. The agreement seemed incredibly promising with 95% of all products being able to be diverted from landfill (a huge step change for the industry) but this announcement validates that it is also commercially viable. They did flag this contract in their half year presentation, suggesting they were very confident in it being awarded, but without detail around numbers. Tempering expectations slightly I don't think it's clear how much of the contract value EGL will see beyond the the $1.5m awarded to TAPC, nor timeframes or margins, but nevertheless it's still a welcome announcement.
[Held]