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.
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.
