3 June, 2022
The Insider: Meet the Fund Manager sessions are a great way to hear directly from leading fund managers. They share their approach to investing, favourite companies and their market view for the year ahead.
Sydney-based Capital H Management follows a five-criteria investment strategy that, according to its founder and MD Harley Grosser, helps the fund manager identify stocks with investment potential – one of which was The Environmental Group Limited (ASX: EGL).
“The reason we are attracted to it is because (it) has five business units and each of them in their own rights have very powerful thematics behind them,” Mr Grosser said during his appearance on Meet the Fund Manager in June.
(Watch the full The Insider: Meet the Fund Manager session.)
EGL is actually our largest investment and the one we have the most conviction in,” he added.
Nearing a 100 years since incorporation, the company’s five units operate within the sphere of environmental protection: improving the quality of air and water, reducing carbon emissions and enhancing waste to energy production.
Mr Grosser went on to pitch EGL’s five businesses and what each of them does:
“Total Air Pollution Control…we think it’s a leader in the category for a lithium refinery which means it’s exposed to that EV, battery and minerals capex cycle which has probably got a very long runway,” Mr Grosser said.
Baltic IES makes components in gas turbines. That’s a key technology required in the transition from fossil fuels to renewables – there’s a tailwind there.”
Tomilson Energy supplies and installs steam boilers, hot water heaters.”
EGL Waste in a partnership with Turmec selling waste recycling solutions – they actually had a large contract not too long ago for the largest waste recycling plant of its kind in the southern hemisphere.”
The company’s star player according to Mr Grosser was EGL Water. “It has an emerging technology for the treatment of PFAS,” he said, adding that PFAS, or Perfluoroalkyl and Polyfluoroalkyl Substances, was quickly becoming viewed as the modern-day asbestos equivalent.
“They’re all profitable, they’re all growing and it’s a reasonable/recent valuation,” he said.
Mr Grosser also hailed EGL’s CEO Jason Dixon saying, “What you find as a bit of a pattern in microcaps when they upgrade management is that when you have a good leader, people follow them.”
They come across from peer companies to join a company like EGL because Jason’s there and we’ve seen that happen across all of the EGL subsidiaries.”
He also recognised Mr Dixon as the herald for the larger institutional investors’ holding a stake in the company and his experience to serve EGL in future merger and acquisition activities.
Evaluating the stock more closely, Mr Grosser pointed out an ‘attractive’ 10x forward EV/EBITDA and why COVID actually did the business a favour.
“In my view, it’s actually a good thing because it’s going to push growth into FY23 and that growth is going to look better and that sort of translates to a higher multiple”
Mr Grosser also pointed out the Biden administration’s US$50 billion injection into improving the US’s drinking water as well as the total annual PFAS treatment expenditure estimated to scale from US$334.6 million in 2022 to US$1.1 billion in 2030.
“This is a large and rapidly growing market. Our view from anecdotal evidence, although it’s still to be confirmed, is that EGL has the leading solution in Australia,” he said.
“If that’s the case and they can commercialise it then we think the stock goes a lot higher and that’s primarily why it’s our largest position.”
Click here to view more videos from Harley Grosser’s Meet the Fund Manager session.
Reach does not assume responsibility for the accuracy or completeness of any information provided, and the views expressed are not reflective of Reach Markets’ position. Any advice contained within this presentation is general advice and does not consider your personal circumstances, you should consider whether it is appropriate for you.
The information we are giving you is for educational purposes only. “Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss.
Past performance is not a reliable indicator of future performance.
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Past performance is not a reliable indicator of future performance.
The CEOs of all the companies chosen as Fund Manager favourite stocks are invited to present at our Meet the CEO series. Reach does not assume responsibility for the accuracy or completeness of any information provided, and the views expressed are not reflective of Reach Markets position.
Any advice contained within this presentation is general advice and does not consider your personal circumstance, you should consider whether it’s appropriate for you.
The information we are giving you is for educational purposes only. “Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss.