Update on Revenue forecast.The forecast Revenue for 2021 (22...

Update on Revenue forecast.

The forecast Revenue for 2021 (22 July Ann.) of $50 million based on my analysis appears to be deliberately conservative. EGL has a history of poor forecasting and perhaps they are learning that in capital markets the best strategy is to under promise and over deliver. Anyway I have spent more time than I probably should getting to understand this company and the apparently very low valuation. EGL is essentially trading at valuations more appropriate to privately owned business, even though it is listed.

Below is a table detailing my revised revenue forecasts based on the available information.



2021 Revenues are based largely upon known revenues and 2022 is largely knowns and 50% guess work. The important revenues though are 2021 and here we can see that both the low and the high are substantially above the July 22 EGL announcement of $50 million. The reason this is important is that a far greater portion of revenue drops to the bottom line once overheads are met. This impact was keenly felt by shareholders in 2020 when Baltec could not cover overheads and plunged the company into a significant loss. In 2021, the reverse applies.

Baltec is in an industry that is now experiencing good tail winds following a period of difficulty. The industry has consolidated and is now just five major players globally. Baltec has a solid relationship with Seimens (one of the five) and is on the verge of being accredited by the largest player, Mitsubishi Hitachi Power Systems (Mitsubishi).

Baltec has $18 million of carryover work and EGL has stated on two occasions that a further $10 million in contracts will be secured in 1Q21. So that is $28 million right there. For Baltec I have used a range of $26 (low) - $28 million (high). The key though is that further contracts will be won this years and that the EBIT margin will be very strong given that Baltec made $1.86 million on revenues of $18 million in 2019.

Tomlinson (TES) produced $20.5 million last year, the first full year of EGL ownership and prior to its parent company (RCR) bankruptcy, TES produced around $25 million per annum in revenues. We see TES heading back to these levels and additionally, the combined Baltec/TAPC engineering team has built a new greatly, improved cost, boiler that is now available for sale and in fact one has already been delivered. Here is a new source of revenues with higher margins in an industry in which the Chairman says has a "substantial" market. On top of that, technology efficiencies are reducing costs and improving efficiencies and TES R&D is opening up opportunities in larger turnkey boilers, amongst other area. EGL is highly skilled in large kit and this market expansion bodes well. So revenues I have conservatively forecast at $23 - low and $24m - high.

TAPC is interesting as this year it looks like kicking a goal. In the last two fiscal years TAPC generated around $5 million in revenues. I have assumed that this level is the background level of revenues for the business. But this year (in fact in the current quarter) TAPC will have completed Stage 1 of the Hasting Technology Metals Ltd (HAS) (actually worth a look as their resource is high quality and highly profitable when development is complete). That's $4 million. Stage 2 commences early 2021 and is an $8 million dollar contract. For the low I have used $4m and for the high half of Stage 2 so all up $8m in addition to background revenues of $5m. But, if Stage 2 completes prior to FY21 ending then we are looking at $17 million, which is highly profitable.

EGL Water's prospects are described in the AR as the most exciting of all the divisions in EGL and that revenues will commence this half. I have assumed just $1 million and $1.5m this year and $2 million for next. I await news which will blow my conservative estimates out the window.

So all in all, we look like we are in for a record year in terms of revenue as the company makes a step change to operate in the $50m - $100m annual revenue range.

Ant that means significantly higher profitability which I will discuss shortly.