Environmental Group's Compounding Story Hits an ERP Speed Bump

After years of upgraded guidance, an ERP rollout and shipping delays forced a profit downgrade that fund managers call a one-off setback

30 Jun 2026 · 4 min read

A five-year run of beaten and upgraded earnings guidance turned into a sharp reversal for Environmental Group in mid-2026, after an ERP system rollout and a string of one-off cost blowouts forced management to slash its FY26 profit outlook and the share price more than halved.

A compounder with a five-year track record

HD Capital Partners laid out the long-run case in November 2025: since 2021, Environmental Group had compounded revenue, EBITDA and cash earnings per share at 28 per cent, 50 per cent and 44 per cent respectively, and had upgraded its own earnings guidance five times since HD Capital first joined the register. The FY24 result had again beaten guidance, coming in 51 per cent ahead versus a guided 45 per cent, with early FY25 guidance pointing to 25 per cent EBITDA growth.

The manager pointed to several structural features it liked: exposure to multi-year thematics such as ESG, electrification and waste regulation; diversified revenue across four divisions that smoothed out individual business cycles; close to 80 per cent of earnings from recurring sources; and competitive positions it saw as underappreciated. As HD Capital put it, EGL Energy is "the largest service network of its kind in Australia with a 35% market share and the only provider with 24/7 national network coverage."

EGL Energy is the largest service network of its kind in Australia with a 35% market share and the only provider with 24/7 national network coverage.

— HD Capital Partners, Article, November 2025

The thesis held into early 2026

Salter Brothers initiated its first position in February 2026 after monitoring the company for several years, and reported a solid first-half FY26 result in March: revenue up 8.6 per cent to $58.9 million and EBITDA up 25.9 per cent to $4.9 million, with the Waste division's PFAS extraction technology progressing to a large-scale plant now installed and undergoing commissioning. FY26 guidance for 15 to 20 per cent EBITDA growth was maintained at that point.

An ERP rollout unravels the guidance

That guidance did not survive May. Salter Brothers detailed the fallout from a February ERP implementation in EGL Energy, where job cost allocation and cost recovery issues were expected to cut FY26 EBITDA by $1.7 million, on top of a $400,000 historical job balance clean-up and $400,000 of higher diesel costs. Shipping disruptions and slower Middle East tender awards added a further $1.5 million hit at EGL Baltec. Combined, the update cut EBITDA guidance from $13.1 million to $8.75 million at the midpoint.

In May, EGL downgraded its FY26 normalised EBITDA guidance by ~$4m to between $8.5m and $9.0m, causing its share price to more than halve. The downgrade was driven by several factors including an ERP system rollout that disrupted job-level cost allocation and invoicing, alongside higher diesel costs, shipping delays and slower tender awards in the Middle East. Management maintained that underlying revenue growth and margins within Energy were unaffected, and that the issues were one-off in nature.

— DMX Asset Management, Monthly Report, June 2026

Managers split on whether the damage is temporary

Investors Mutual Limited, watching the 55.5 per cent share price fall in May, described it as an over-reaction to short-term issues. DMX Asset Management, initiating a position in June 2026 at a market capitalisation of around $33 million, took a similar view, arguing management believed the FY26 issues had been addressed and expecting FY27 to return to the level of profitability achieved in FY25, a normalised net profit of $6 million on around $120 million of revenue. Whether that recovery materialises on schedule is the key thing Thesis Tracker will be watching for Environmental Group through the rest of FY27.