For investors looking to add an ASX small-cap allocation to their portfolio, Environmental Group Ltd (ASX: EGL) is worth watching.
A new report from Bell Potter indicates it could be set to rise significantly over the next 12 months.
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Company overview
The Environmental Group is an emerging Australian environmental engineering company with a focus in resources and waste sectors.
EGL's service proposition covers air emissions control, water pollution and recycling plant solutions across four business segments:
- Baltec
- EGL Energy
- Total Air Pollution Control
- EGL Waste.
Its share price crashed a whopping 30% last week after the company advised that it now expects FY26 normalised EBITDA to be in the range of $8.5-$9.0m (BPe $13.2m), which compares to prior guidance of 15-20% growth ($12.7-$13.5m).
At the mid-point this equates to a -21% decline from FY25.
According to Bell Potter, the revised guidance reflects EGL Energy and Baltec disruptions.
A $2.5m estimated FY26 EBITDA impact is expected in the Energy division driven by operational matters(through the implementation of the ERP), historical job balance clean-up and higher fleet diesel costs. Baltec is expected to see a $1.5m impact due to delayed deliveries, logistics disruption and slower Middle East tender awards. Clean Air and Waste continue to trade broadly in-line with management expectations.
Can this ASX small-cap rebound?
After falling significantly last week, the team at Bell Potter reduced their price target on this ASX small-cap.
Additionally, it has adjusted its earnings per share forecast.
EPS changes in the report reflect operating EBITDA revised in-line with updated guidance and flow on effects to FY27 and beyond: -52% FY26; -22% FY27; -11% FY28.
However the broker still sees upside for this ASX small-cap.
Environmental Group shares closed last week at 14 cents per share.
Bell Potter has retained its buy recommendation and updated its price target to 21 cents per share (previously 35 cents per share).
This indicates 47% upside from current levels.
EGL is confident it has identified and addressed its ERP issues. The company will now manually check invoices to mitigate any risks moving forward. EGL Energy is still seeing strong demand and revenue growth however Baltec is navigating through a tough operating environment owing to the Middle East conflict. We retain our Buy recommendation driven by the growing recurring revenue stream and now undemanding valuation.
