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EGN

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galumay:
Looking at taking a position in EGN, Engenco, Engenco Limited, together with its subsidiaries, It operates through Drivetrain, Centre for Excellence in Rail Training (CERT), Convair Engineering (Convair), Total Momentum, and Gemco Rail segments. The Drivetrain segment offers engine and powertrain maintenance, repair, and overhaul; power generation design and construction; and technical support, professional engineering, and training services, as well as fluid connectors, new components, and parts. The CERT segment provides rail training, rail incident investigation training, security (transit guard) training, first aid training, and company induction and course design services; issues certificates of competency; and manages apprenticeship and trainee schemes for various infrastructure and rail clients. The Convair segment manufactures pneumatic road tankers and mobile silos for the carriage and storage of construction materials, grains, and other dry bulk materials; and offers maintenance, repair, and overhaul services, as well as sells ancillary equipment and spare parts. The Total Momentum segment provides personnel and project management services, such as professional recruitment; and training and workforce solutions comprising track construction and maintenance projects to freight rail and mining rail infrastructure managers. The Gemco Rail segment engages in the remanufacture and repair of locomotives, wagons, bearings, and other rail products for rail operators and maintainers. This segment offers wheel-set, bogie, and in-field wagon maintenance services; and manufactures new and refurbished wagons, bogie component parts, customized remote controlled ballast car discharge gates, and rail maintenance equipment and spares. The company serves defense, resources, marine, power generation, rail, heavy industrial, and infrastructure sectors in Australasia, Europe, and the United States. Engenco Limited was founded in 1989 and is headquartered in Melbourne, Australia.

I think this is a turn around opportunity the market has missed so far, the business was severely negatively impacted by very poor management in the last few years but has largely been turned around by the current team and looks to have a solid future. It is currently undervalued by my quick and dirty FCF DCF and looks to be moving to a business that can get a high return on incremantally invested capital - although its hard to be sure because the turn around is only in the last 2 years so there is not a sufficient history to make an informed decision.

Dale Elphinstone has brought a discipline and improved capital allocation discipline to the board and his background with Catapillar has been important in the turn around of the business. He has also been an active acquirer of EGN shares and holds over 200,000,000 shares!

91% of the shares are held byt he top 20 and the Elphinstone interests hold 65%!

The business has no debt and significant cash on hand.

Risk to the business is not obvious, possibly the biggest risk would be a poor capital allocation but given Elphinstone's huge stake, this would seem a little unlikely. But I guess one should never under estimate management's capacity to do harm!!

Competitive pressure is possible from Downer EDI as the big player in the field.

This is from Pioupiou - "Egenco is the renamed Coote Industries Limited (CXG). The CXG-Greentrains contract caused CTX much woe, and brought Elph Pty Limited in as the controlling shareholder. I am, in part, relying on memory, but I think the gist of the history is as follows.

In FY2008, a Coote family-owned Orange Grove Brickworks (Michael Coote was a director of its controlling entity) was involved in a deal to purchase refurbished rolling stock from the Gemco unit of CTX for $82.7m, and lease the rollingstock back to CTX. Greentrains Pty Ltd, with no funds to speak of, was registered on 26 June 2008 to purchase the rollingstock. CTX recognised the sale and the profit in FY2008, and recorded the debt as a current asset. The Annual Report looked good, and the SP rose well above $1.

In FY2009 it emerged that Greentrains could not pay the debt. The net effect was that CTX took ownership of Greentrains (81% to be exact), and Elph Pty Limited injected $8m into CTX sometime prior to 26 April 2009. Elph later provided Greentrains with a loan facility, and by acquiring more shares it gained effective control of CTX. Greentrains was discontinued in FY2016 The agreement to sell the majority of Greentrains's locomotive fleet to Holdco Holdings Pty Ltd was signed on 28 April 2016.

If you can find ASX announcements made in FY2008 and later, you can read how matters unfolded.
At https://www.railpage.com.au/f-t11345993.htm you will find less sanitised comment. The gist of what is in https://en.wikipedia.org/wiki/Greentrains is correct, except for the sentence, “It was formed in June 2008 as a subsidiary of Coote Industrial”. Greentrains was not a subsidiary initially – it became an 81% subsidiary later as part of a debt-offset deal. I suspect that the original contrivance of the 2008 deal was based on a funding expectation that did not materialise."


bgt 16666 @ 60c 14/1/20

Why will this business be around in 10 years? - Because of the specialised nature of its rail and truck manufacturing base, there will still be rail and truck transport in 10 years. Also been around 30 years already.

galumay:
Half yearly report was steady without any real growth overall, I think patience will be required to see the story play out but I think its still probably that the transformation of EGN continues and value will be created. Probably wont accumulate until more signs of management execution being successful.

galumay:
FY2020, nothing to add really, steady progress, no red flags.

galumay:
H1 2021, best result since we have held EGN, mainly achieved thru cost control as revenue was slightly down, impacted by Covid.

galumay:
FY 2021 still impacted by Covid, business had a drop in revenue and NPAT, managed to improve FCF and remains debt free. Hopefully business shows signs of improvement this year.

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