I really like Jason -- seems to have a clear idea of where the key strengths of the business lie, and has really helped drive profitable growth since he took over 3 years ago. A no-nonsense guy and a straight talker.

Honestly, I think I'm going to add some EGL to my portfolio on that basis alone.

Here are some highlights from today's meeting:

• EGL has transitioned from a traditional engineering company to one focused on maintenance and services, with over 50% of revenue now coming from recurring service work.
• The different divisions of EGL, including Baltec (gas turbines), Tomlinson (boilers), TAPC (air pollution control), and EGL Waste, are highly complementary and provide integrated solutions for clients. There really do seem to be genuine cross-sell opportunities. For example, EGL Waste brings together service lines like recycling plants, dust extraction, odour control, boilers, and combustion technologies, allowing EGL to offer end-to-end solutions in the waste industry.
• The waste industry in Australia is undergoing significant change, with a ban on waste exports and a requirement to increase recycling rates by 17% in the next 6 years. This is driving $5 billion in spending on new waste treatment plants, presenting a major opportunity for EGL (the largest player in this space)
• Baltec has developed world-leading IP for gas turbine silencers suitable for peaking load operation, as the energy market shifts towards renewables supported by gas peaking plants. This positions Baltec for strong growth over the next 20-30 years.
• The exclusive distribution agreement with Fulton, a global leader in boilers, is expected to drive significant growth in the Tomlinson division without adding fixed costs, directly benefiting the bottom line. Jason really hit this point several times -- it sounded like a very significant opportunity.
• The PFAS water treatment technology is seen as a potential game-changer, with strong interest from clients and a large addressable market, particularly in the treatment of contaminated biosolids.
• Jason emphasized the importance of balancing engineering excellence with commercial discipline, focusing on margin expansion rather than just top-line growth (love it!!)
• EGL has significantly improved margins across its divisions by instilling a strong commercial mindset and implementing rigorous project review processes.
• The company is taking a disciplined approach to growth, focusing on organic opportunities and strategic partnerships that enhance existing capabilities, rather than pursuing acquisitions simply for the sake of growth.
• He mentioned the growth they had achieved without "one red cent" of capex:
• Turmec, Kadant PAAL, and Fulton - were secured without EGL putting in any capital, yet they hve been instrumental in growing the business from $35 million in turnover to nearly $100 million.
• He also pointed out that they are still in the early stages of realizing the benefits from the Kadant PAAL and Fulton deals, suggesting significant growth potential ahead without the need for capital investment.

That last part alone gave me a sense he is a very savvy operator. And, to cap it all off, he's a massive shareholder and has a base salary of $270k (pretty ordinary for the CEO of a $100m listed company.)

30-June-2023: Strategic-Partnership-Agreement-with-374Water-Systems,-Inc.PDF

Strategic Partnership Agreement with 374Water Systems, Inc.

The Environmental Group Limited (ASX:EGL) is pleased to announce that it has executed a Strategic Partnership Agreement (SPA) with 374Water Systems, Inc. (NASDAQ: SCWO) for the exclusive distribution of the AirSCWO technology in Australia and New Zealand. 

374Water Systems (374Water) is a global cleantech and social impact company founded in 2018. 374Water has developed and commercialised the novel AirSCWO™ system – a modular waste slurry destruction technology which destroys all organic compounds including PFAS and other persistent organic compounds. The technology utilises a physical-thermal process powered by water above its critical point (374°C and 221 bar) and air, that yields a highly effective oxidation reaction that completely eliminates organic compounds. At scale, the process generates energy and safe by-products which can be recovered and reused.

The technology has a broad range of applications including the processing of organic waste streams including:

• Biosolids & biosolid digestate
• Landfill leachates
• Commercial & domestic wastes (oils, fats, grease, plastic and food wastes)
• Liquids, sludges, and slurries contaminated with PFAS, 1,4-Dioxane
• Spent adsorption media like granulated activated carbon & ion exchange resins
• Animal and animal processing wastes
• Persistent organic pollutants.

EGL’s established network in the waste, utilities and industrial sectors provides the opportunity for the rapid uptake of the 374Water technology which will be complimented by EGL’s existing broad service network to provide effective after sales service and support. 

The AirSCWO™ technology successfully processes waste streams in a standalone manner or can be combined with EGL’s PFAS Concentration technology, making it possible to treat vast volumes of PFAS contaminated liquid waste streams and destroy PFAS – Removing the contaminant entirely from the environment.

EGL Chief Executive Officer Jason Dixon said, “We are delighted to announce our strategic partnership with 374Water, marking a significant milestone for EGL. This collaboration allows us to bring the world-class AirSCWO technology to Australia and New Zealand, revolutionising the destruction of organic compounds and addressing critical environmental challenges. With our own PFAS concentration technology, extensive customer base and robust service network, we are confident in the success and positive impact this partnership will achieve.”

374Water Chief Executive Officer Kobe Nagar adds, "Through our strategic partnership with EGL, we're excited to expand AirSCWO technology's reach to Australia and New Zealand, revolutionizing their waste treatment landscape with our innovative solution."

They key terms of the SPA include:

• EGL is granted the exclusive distribution rights of 374Water’s AirSCWO™ technology within Australia and New Zealand.
• Provisions for comprehensive training of EGL service technicians in the USA for installing, commissioning, and servicing AirSCWO™ systems operating in Australia and New Zealand by EGL.
• Opportunities to implement AirSCWO™ technology into EGL PFAS Concentration projects for PFAS destruction.
• Where requested by 374Water, the provision of Project Services which include project management, design, procurement, construction, installation, commissioning, and maintenance of AirSCWO™ systems within the territories of Australia, New Zealand and Association of Southeast Asian Nations (ASEAN) as well as Pacific Ocean island countries and territories located west of the international date line.
• 2 years validity with an option to extend by a further 3 years.

Comment: I think this is another smart Strategic Partnership Agreement (SPA) that makes a heap of sense for EGL. And it's well within their wheelhouse, as usual.

Disclosure: I do hold EGL shares, both here and IRL. I note that the EGL SP rose +7.5% (or +1.5 cps) yesterday, and was up another half cent earlier today - although currently flat - at $0.215. Great potential! Looks signifcantly undervalued to me, based on regulatory and other tailwinds, and their market position. Also, as Jason Dixon said here recently (see Company Meetings page), they are virtually recession-proof. Most of their recurring revenue generating business units are anyway. Lots to like. Right place(/space), right time!

Now I wait for the market to catch up...

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.

18-April-2023: EGL-Acquisition-of-Airtight-and-Capital-Raising.PDF

Plus: EGL-Investor-Presentation---Acquisition-of-Airtight--Raise.PDF

EGL to acquire Airtight Solutions funded through a $8.0 million institutional placement 

Highlights:

• EGL to acquire leading Australian air pollution services provider Airtight Pty Ltd (“Airtight”) for $7.0 million plus up to $5.0 million earnout based on FY24 earnings [The earnout payable will be equal to the amount by which Airtight’s FY24; EBITDA (calculated on a pre-AASB 16 basis, noting that cash rent is expected to be $0.3 million) exceeds $1.35 million, multiplied by 5, up to a maximum of $5.0 million];
• Acquisition represents a major expansion of EGL’s presence in the air pollution control market;
• Airtight focuses on smaller low-risk projects with recurring cash flow in the light industrials sector, diversifying EGL’s revenue and expanding EGL’s client base;
• Revenue synergies from cross-selling with EGL’s TAPC and Waste Services divisions, and the opportunity to grow service revenue through Tomlinson personnel and experience;
• Highly experienced and capable leadership team and excellent cultural fit;
• Acquisition of Airtight is expected to be more than 15% EPS accretive to EGL shareholders on forecast FY24 pro forma earnings (before any synergies);
• EGL will undertake an equity capital raising of up to $9.0 million, comprising a placement to raise $8.0 million (“Placement”) and a subsequent Share Purchase Plan to raise up to a further $1.0 million (“SPP”); and
• Proceeds from the Placement and SPP will be used to support the acquisition and growth of Airtight.

Strategic Acquisition and Capital Raising

The Environmental Group Limited (ASX: EGL) today announced that it has signed a binding agreement to acquire 100% of the shares in Airtight for $7.0 million plus earnout. Airtight is a leading Australian air pollution services provider in the mid-tier market. Airtight was established in 2002 and operates under the name Airtight Solutions. 

Background on Airtight

Airtight is one of the largest specialist air pollution control companies operating in Australia, with an extensive track record and a focus on reliability, premium service and safety. Established in 2002, Airtight was formed by senior air pollution control engineers who recognised a gap in the mid-tier market for air pollution control in Australia.

The key divisions include:

• Dust & Fume Control – specialises in designing, installing and maintaining air pollution control equipment;
• Engineered Solutions – offers engineering resources required to deliver pollution control projects;
• Aftercare Servicing – offers preventative maintenance & servicing packages; and
• Waste-to-Energy – offers extensive range of waste reduction technologies.

Airtight serves several key client industries including automotive, agriculture, manufacturing, joinery, metal & polishing, food & pharmaceutical, paper & printing and recycling & waste recovery.

Airtight is headquartered in Wetherill Park, NSW and operates in Sydney, Melbourne and Brisbane. Airtight has approximately 40 staff across these offices.

Strategic rationale

The acquisition represents a major expansion of EGL’s presence in the air pollution control market.

• The acquisition expands EGL’s solutions offering to include small and medium size airborne dust collection solutions and associated services and products;
• The acquisition captures sections of the market outside of TAPC’s existing target network, as well as providing industry diversification;
• Significant cross-sell opportunities with EGL’s TAPC and Waste Services divisions, plus opportunity to leverage Tomlinson personnel/experience to grow EGL’s service offering; and
• Airtight’s management team is highly experienced and culturally aligned to EGL, and is expected to add significant depth to EGL’s operations.

EGL’s Chief Executive Officer Jason Dixon (who has been interviewed here on Strawman by Andrew - see Meetings and scroll all the way down to Friday October 8, 2021, 12-2pm AEST) said: “Airtight represents a unique opportunity for EGL to expand significantly in the air pollution control market. Having high quality staff with great reputation in the market, Airtight’s strength lies within its focus on the lighter industrials market, which complements TAPC’s heavy industrials sector focus.”

“The acquisition will provide EGL with greater diversity in its business and service offerings, broadening our customer base and further improve the consistency of cash flow.”

See EGL-Acquisition-of-Airtight-and-Capital-Raising.PDF for the remainder of this announcement, which includes the Transaction Summary, Financial Impact, Placement details, SPP details, and the indicative timetable for all of that.

Sounds like a good fit to me. I hold EGL shares both here on SM and IRL, since shortly after that 2021 interview with Jason Dixon here.

One aspect of EGL that I have thought was quite exciting from a future revenue perspective was their PFAS treatment solution that they have been developing, and are just beginning to commercialise. However, it looks like they aren't as far ahead of the competiion as I had previously thought. I just noticed an announcement from SciDev (SDV) that they signed (22/12/22) an aggreement with Cleanaway to Build Own and Operate a water treatment plant to primarily treat PFAS, but also reduce TDS from a site in QLD. They say they are reducing TDS without reverse osmosis or membrane filtration so I am guessing they must be using some kind of chemical flocculant. Not sure if the EGL solution can be customisable or is more a pure PFAS treatment solution. The SciDev on-site build should begin in Feb 23 and run through to the end of CY23 for a minimum value of $2.15m for a fixed, but undisclosed volume of leachate, with revenue upside potential if they can treat a higher volume.

From LinkedIn I saw that they also completed a PFAS treatment late last year using their mobile treatment unit (400KL/day)-

Earlier this month, SciDev completed the treatment of per-and poly-fluoroalkyl substances (PFAS) impacted surface water run-off at the future Woolworths Moorebank Regional Distribution Centre (MoRDC). The future distribution centre, scheduled to open in 2024, is a $175M project being delivered by Richard Crookes Constructions.

 Due to the historical land use at Moorebank, trace PFAS contamination was present in the subgrade throughout the MoRDC Stage 2 Site. Stormwater run-off from rain events became contaminated with PFAS and required capture and treatment to avoid contaminating surrounding rivers/creeks. During the construction of the MoRDC, Moorebank experienced long periods of heavy rain. As a result, on-site water storage was at risk of uncontrolled discharge. To mitigate against this, the water treatment plant (WTP) was mobilised and fully operational within four business days.

 The water treatment plant, with a nameplate capacity of 400 kL/day, treated 14.1ML of surface water run-off and enabled the safe discharge of treated water, meeting strict environmental regulations. The quick mobilisation of the water treatment plant provided a reactive response and maintained the construction program despite heavy rainfalls throughout the construction period. A cost-effective and functional solution to treat what could have been a significant risk to the project.

There is a real demand for a viable and cost effective PFAS treatment option and it looks like SDV is getting the first mover advantage and building a reputation in this space. I am expecting that if they deliver well on the Cleanaway project then Cleanaway are more likely to use them at their other landfill sites. This could remove one potential large customer from EGL's PFAS solution. Likewise, I am aware of a lot of local councils that know they have a PFAS problem and are hungry to implement a viable solution, with cost being less important than outcome. So I think the market is ready and probably is large enough for both companies to be successful in the space, but the margins may not be as high with multiple competitiors bidding on tenders.

24-Nov-2022: FY23-Trading-Update.PDF

Also: FY22 AGM Chairman and CEO Addresses and Presentation

Here's that Trading Update:

That's a decent upgrade, from around +25% up (EBITDA increase) to now expected to be around +35% up (FY23 vs FY22).

That's on the back of excellent growth from their TAPC division, the first of the 5 divisions detailed above and the division that is clearly providing the bulk of their growth. I still regard "EGL Water" as being their "Powerball" upside. If they can succesfully commercialise that PFAS removal tech, as they expect to, the potential upside of that division is truly awe-inspiring, but that is of course a big "if" ! So I don't factor that into my valuation. If it happens, it would be great, but I'm happy to hold shares in the company regardless of whether that PFAS tech goes anywhere or is a flop. To be clear, we know it works, it's just a matter of whether they can roll it out at a cheap enough price point to make it an attractive enough option to sell like hot cakes. Just because something works does not nescesarily mean it will be a commercial success.

They also have the Tomlinson Energy Service (TES) business that looks after (services and repairs) hundreds of boilers around the country year after year, and they also clip the ticket on all Turmec sales in Australia via their 2% commission agreement that is part of their Turmec Agency Agreement for Australia which sits within their EGL Waste Services division. That division focusses on large state-of-the-art recycling plants, and there is a fair amount of cross-selling involved there as well (TES + TAPC).

I hold shares in EGL both here on SM and IRL, and what I like most about them are:

1. Their core offering is all about cleaning up the environment, removing contaminants (such as PFAS), controlling pollution, making gas turbines more efficient, keeping boilers operating efficiently, developing a "bio/waste to energy" platform, and then there's building and providing consumables to state-of-the-art recycling plants (the Turmec agency agreement). That stuff is not only doing good, i.e. doing the right thing, it's also going to have a lot of tailwinds behind it, including regulatory tailwinds in some cases. There's a switch on. Many people are after clean and green investments. This is definitely one of those. The hint is in the name of the company.
2. They are not widely followed or well known, and that's often where the most value can often be found, in my experience. The larger companies that everyone is watching tend to be more accurately priced, but companies like EGL, ...not so much.

I think I could also add a third one now, that they tend to underpromise and overdeliver. I like companies that upgrade guidance, rather than downgrade it. The market liked it to. EGL finished the day up +10.53% or up 2c to 21c/share, i.e. back to where they were trading in mid-September (9 weeks ago).

Onwards and Upwards.

The Environmental Group Limited - Home [ https://www.environmental.com.au/ ]

EGL announced its annual results last week.

In essence, revenue was up 22% to $57M, EBITDA up 34% to $4.4M and NPAT was $1.6M. Management had predicted that EBITDA would increase at least 15%, upgrading that to 30% as discussed in my last post. The main drivers for revenue were Tomlinson (boilers, autoclaves and energy services) $27.9, Baltec $19.3M and TAPC $7.9M. The most profitable segments of the 'One EGL' Group were Waste (90% margin) and TAPC (16%). The most anticipated profit driver- EGL Water (PFAS extraction) has yet to contribute. As I have said repeatedly, EGL is an engineering company and should be viewed as such. Margins in engineering are characteristically low. Worley Parsons had a margin of profit of less than 3%.

However, there are several reasons why I continue to hold shares in EGL and why I am still recommending it to members as an investment:

1. The Company has moved towards an entrepreneur-driven, management-focused business under Jason Dixon while retaining its quality engineering business.
2. It is rapidly expanding into areas that broaden its environmental credentials and which complement each other. For example, its waste management division (Turmec) has allowed on-selling by other divisions like asbestos detection, dust extraction, boilers, and extraction of water contaminants. EGL receives a 2% commission for the commissioning of new Turmec recycling centers and derives further income from ongoing parts and service contracts.
3. The interests of management are aligned with shareholders. Jason Dixon (CEO) and Paul Gaskett (National Sales Manager) both have significant shareholdings
4. EGL Water seems to have technology that may ameliorate or solve a major water and ground contamination problem (PFAS). EGL raised $4.5M in a private share placement last December and has sufficient funds to fabricate more than 10 PFAS Extraction plants. The first plant is soon to be placed into operation. There are orders for 8 or 9 more. It is likely that the technology will be licensed to Turmec. Turmec has a strong presence in Northern Europe. EGL will then derive a loyalty stream that will diversify it from the traditional engineering model. Entrance into the American market is not expected for another year. A lot will depend on the success of these early plants and therein lies the skill and versatility of the engineers at EGL. For that reason, I consider profits from EGL water to be speculative but potentially transformative to the Company.

I retain my prediction of revenue exceeding $100M in 2 years with improving margins, provided that inflation and supply chain problems can be kept under control. The company has shortened its valid pricing times to 30 days for new work but unconstrained inflation and recession are risks for this Company, as for all companies in the engineering and manufacturing sector.

disc: I own shares

EGL announced they have secured a $17.8m contract in their TAPC business. It's a big deal given it represents almost 40% of the total revenue for EGL in FY21 alone - TAPC being just one of five divisions they run. Difficult to know what they'll make on it, although the current CEO has been at pains to emphasize bids going forward would be at higher margins than before he took over.