$EGL closed down 15% today, and I think at some point they were down as much as 25%.
I attended the call today (but haven't written up my notes, as it has been somewhat of a deluge of results on my Watchlist today, and I wanted to focus my effort on analysing $DUR, which I've just written some overall comments on.)
$EGL's SP got whacked big time for the Baltec Project Execution stuff-up when it was announced last November, and today it was as if it got whacked all over again, largely for the same information - albeit the $1.2m cost blowout impact was made clear.
In terms of other bad things in the results, Clean Air segment has been hit hard by the down turn in lithium - again, hardly news. Quite wisely CEO Jason Dixon said they weren't waiting for lithium to recover and are exploring other areas to focus deploying this technology to. So, I guess that's the same as saying "don't expect much from Clean Air for a while".
And, yes, there was reduced margins in energy because they've brought on 10 people to support the large volume of service work they see coming over the horizon as they perform regular statutory checks on every boiler rated at over 2MW, in perpetuity.
But despite the downbeat report, the company is holding to the November issued guidance of FY25 EBITDA to grow by 10-15%.
At one point Jason said he was perplexed by the market reaction, because he thinks the business is doing pretty well.
So I think this is perhaps an issue of credibility. I believe Jason was a bit too relaxed is his words around the Baltec screw-up. At one point saying "someone made a mistake" ... "won't happen again".
But as I have said before, project execution is a world full of mistakes, a multitude of "unique mistakes that won't happen again". (If I had a $ for every project-screw-up-lesson-learned workshop or post-mortem I've run in my career,... well, I'd have even more to invest ;-) I once had a boss who was Deputy CEO of a global enegy company who vented at me once after a post-investment appraisal saying "I don't want to hear about learning lessons, I want the f****** our there to earn their wages and APPLY the lessons.".)
Most capital projects run significantly over budget and over schedule - there's no shortage of studies and stats. to bear this out. But unlike yesterday's call with Peter De Leo at $LYL where I came away with high confidence that the management team there knows who to assess and price project risk, Jason didn't give me the same confidence today. But all that said, I still feel like $EGL have been whacked twice for largely the same information.
I do consider that today's closing price givign a FY25 forward P/E of 16.5 makes the stock well-priced given the industry tailwinds (strong energy sector; water and waste - blue sky upsides essentially valued at $0). It is by no means cheap for an engineering and projects company, but it does have a strong component of recurring, maintenance-type revenue, which looks set to increase. And so I think this can easily justify a P/E in the 15-20 range.
So, I've added to my position in RL and SM.
How do I reconclile my concerns about project execution at $EGL and buying more? Easy. Most of $EGL projects involve deploying standard packages and solutions into client infrastructure. While of course every project is unique (witness the road transport loading miss in the Singapore Blatec project), the projects have more in common with prior projects than they are unique. And again, the research shows that repeat projects tend to do better on cost and schedule blowouts, because they are more amenable to learning. So EGL's technical project risk profile should be lower than a run-of-the-mill-engineering-and-construction-firm. Anyway, that's what I convinced myself of today before I hit the "BUY" button.
Keen to hear other holder views? And I need to look at the results more closely to see what I've missed.
Disc: Held in RL and SM
