The Environmental Group (ASX: EGL) isn’t the flashiest name on the ASX, but it’s quietly building a reputation as a solid player in pollution control and environmental management. With businesses spanning air purification, industrial waste treatment, and energy efficiency, EGL has a hand in cleaning up some of the messiest industrial processes. At the time of writing, the EGL share price is 29c per share, down significantly from share price highs above 40c last year but well up on the EGL share price of a few years ago.
The EGL share price growth over the last few years is mirrored by some strong earnings growth, especially in FY 2024, when profit surged 68%, and EPS climbed 45%. With $10 million in cash and no debt, the balance sheet is solid. But does that justify today’s EGL share price?
Sceptics argue EGL is expensive, even after the stock price has fallen following a recent earnings downgrade. Optimists see a growing company with a steady services arm, exposure to the energy transition, and an intriguing ‘blue sky’ opportunity in PFAS treatment – a promising but unproven revenue stream.
So, is EGL an overpriced hype stock or an undervalued environmental powerhouse? Let’s dig in.
Is the EGL Share Price Right?
EGL’s recent financial performance has been impressive. In addition to its 68% profit growth, EPS jumped 45% to 1.15 cents. But headline numbers only tell part of the story. A significant portion of this growth came from acquisitions, which can mask the true health of a business. And growth is forecast to slow.
Revenue growth has been solid, coming in at 45% in FY23 and 19% in FY24. Profit growth by any metric was significantly higher, indicating potential operating leverage.
The balance sheet is undeniably strong. The company has moved from net debt to net cash, now sitting on $10 million with zero debt. That kind of financial flexibility allows for future growth while reducing risk in tougher times.
Free cash flow came in a touch over $4 million for FY24, down from $5.5 million in FY23. This seems to be largely attributable to a rise in working capital, specifically contract assets and receivables. In isolation this is not concerning and is likely due to contract and payment timing, but this is an area to watch in future results.
Despite these positives, EGL’s November downgrade spooked investors. Previously, management expected FY25 EBITDA to grow by 25%, but after cost overruns in Singapore, that figure was revised down to 10-15%. Analyst forecasts (per Morningstar) now put FY25 EPS between 1.4 and 1.5 cents, which translates to a price-to-earnings (PE) ratio of just under 20x at today’s share price.
FY26 EPS forecasts of 1.7–1.9 cents imply a PE of 14–16x. Not dirt cheap, but potentially reasonable given EGL’s momentum and exposure to long-term environmental trends. However, it is important to consider that there is only minimal analyst coverage of this stock, and the company itself can’t even give accurate guidance. There is no obvious reason to assume analysts would be any better at predicting earnings than the company itself.
A Business Built on Cleaner Air, Smarter Energy, and Less Waste
EGL isn’t a one-trick pony, or to put it another way, it has no clear focus as a business. Its business spans multiple segments, many of which are positioned to benefit from increasing regulation, tightening environmental standards, and the broader energy transition. However, it is not clear if environmental regulations will actually increase or decrease in the short term, given their unpopularity with various politicians throughout the world.
- EGL Clean Air (TAPC) – Provides air pollution control for industrial clients, including those involved in lithium and rare earth projects. Given the demand for critical minerals, this division could see steady long-term growth.
- EGL Energy – Focuses on high-efficiency, low-emission, and carbon-neutral products. This includes electric boilers, which enable zero-emissions steam generation when powered by renewable energy.
- Baltec IES – Specialises in efficiency improvements for gas turbines. With gas playing a bigger role in firming renewable energy, turbines need re-engineering to handle frequent restarts – an area where Baltec is well positioned.
- EGL Waste Solutions – Aimed at reducing landfill, improving recycling processes, and removing industrial contaminants.
Beyond equipment sales, EGL is building a services business, which they believe will provide a growing stream of recurring revenue over time. We’ve sent some questions to the CEO regarding the nature of this recurring revenue, and we’ll update this paragraph with more details if we receive useful answers.
PFAS Treatment – A High-Potential Side Bet
EGL’s potential ‘blue sky’ opportunity lies in PFAS treatment – a growing environmental issue worldwide. The company is working with Reclaim Waste in Victoria to process PFAS-contaminated liquids, a service that could become highly sought-after as governments respond to concerns about PFAS contamination.
PFAS are a group of synthetic chemicals that have been widely used in industrial and consumer products for decades. Found in everything from firefighting foam to non-stick cookware and waterproof clothing, PFAS are known as “forever chemicals” because they don’t break down naturally and have been linked to serious environmental and health concerns.
While it’s an oversimplification, it might be helpful to think of PFAS as the ‘asbestos of the 21st century’.
EGL believes that this could be a significant market opportunity in the years ahead, but ultimately, their success will depend on execution, competition, and regulatory momentum.
Some investors see EGL’s PFAS technology as a future cash cow, but it hasn’t yet generated any revenue. It offers potential upside, but EGL’s investment case doesn’t hinge on it.
What Could Go Wrong?
No company is without risks, and EGL has a few worth noting:
- Capital-Intensive Business – EGL operates in an industry that requires ongoing investment in equipment and infrastructure. This can strain cash flow and profitability if projects go over budget.
- Cost Overruns – The Baltec project in Singapore is a prime example. Management insists this was a one-off, but overruns are always a risk in large industrial contracts.
- PFAS Uncertainty – While promising, EGL’s PFAS treatment business is still in its early stages. Regulatory approvals, competition, and demand uncertainty all add risk.
- Market Cycles – Demand for industrial projects tends to rise and fall with the economy and political priorities.
Leadership and the Long Game
EGL has been consistently improving its fundamentals under CEO Jason Dixon, who has delivered stable earnings growth, a stronger balance sheet, and a clearer strategic focus.
Board members own 11% of the company’s shares, a sign that management has some skin in the game. While not an overwhelming insider stake, it’s enough to suggest alignment with shareholders.
The services and maintenance division also gives EGL a competitive edge. Many of its products come with long-term support contracts, and in some cases, EGL is one of the few players offering 24/7 maintenance nationwide. That’s a small but expanding moat.
Where EGL Stands Today
The Environmental Group has demonstrated strong revenue growth, a healthy balance sheet, and a diverse customer base, making it one of the more credible environmentally positive stocks on the ASX.
The PFAS opportunity is a wildcard rather than the main reason to invest, and valuation remains a key debate. After the recent pullback, the stock seems roughly reasonably priced, though not cheap, to me. And for those who also consider other stakeholders, it is fair to say that the world will be a healthier place if the Environmental Group succeeds.
Disclosure: The author of this article does not own shares in EGL and will not trade EGL shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 343937).
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