Environmental Group (ASX:EGL) cuts FY26 EBITDA by a third on ERP and Suez

A new ERP rollout and a blocked shipping route just stripped A$4m of earnings

Guidance downgrades are rarely fun, but they vary a lot in quality. The one The Environmental Group Limited (ASX:EGL) delivered this morning is the kind investors can at least diagnose, even if they don’t enjoy it.

Management now expects FY26 normalised EBITDA of A$8.5m to A$9.0m, down from prior guidance of A$12.7m to A$13.5m. That is roughly a A$4m hit, or close to a third of the previously guided range, and it lands in the back half of the financial year.

Two divisions carry the damage. EGL Energy takes A$2.5m of the impact, driven mostly by problems with a new ERP system rolled out on 2 February 2026, plus higher diesel costs. EGL Baltec absorbs the other A$1.5m as gas turbine projects sit on docks waiting for shipping routes through the Suez Canal to clear.

Clean Air and Waste, the two divisions not mentioned in the cut, are tracking in line with internal expectations. That matters because it narrows the problem to two specific, identifiable issues rather than a broader business slowdown.

The ERP problem is the one we’d push management hardest on

ERP system implementations are notorious for chewing up earnings in the year they go live. EGL rolled out its new system on 2 February 2026, and the company is now telling investors that job-level cost allocation and recovery of job-related costs were not working as intended for several months.

The financial impact at Energy is A$2.5m, which includes a A$0.4m clean-up of historical job balances from prior periods and a A$0.4m fuel cost overrun. The remaining roughly A$1.7m sits with the ERP-related cost recovery and invoicing issues that have now been addressed.

Our concern is straightforward. The company says underlying revenue growth and margins at Energy have not changed, which is the right message to deliver. But until we see a clean half of post-fix numbers, investors are being asked to take that on trust. We’d want to see it confirmed in the FY26 result.

Baltec’s pain is geopolitical, not operational

Three EGL Baltec projects have product built, packed and ready, but cannot move. The Suez Canal disruption has stalled both inbound materials and outbound deliveries on a division that does meaningful business in the Middle East.

Most of the affected revenue is expected to slip into FY27 rather than disappear, which is the important distinction. The Middle East tender pipeline has also slowed, suggesting some customers in the region are pausing decisions until the logistics picture clears.

The skeptical read is that Suez disruption has been a known issue for a long time, and a A$1.5m hit on three projects suggests Baltec’s exposure to single-route logistics is higher than the market had appreciated.

What survives the downgrade

Strip out the ERP issue and the Suez delay, and the underlying story at EGL has not really changed. Energy revenue is still growing, customer demand is intact, and Clean Air and Waste are doing what they were expected to do.

The PFAS treatment work in the Waste division, developed with Victoria University, is the longer-term optionality that does not feature in FY26 numbers at all. It is also the piece of the business most likely to re-rate the stock if a commercial deal lands.

At A$8.5m to A$9.0m of normalised EBITDA, EGL is still a profitable, cash-generative environmental services business. The question is what investors are willing to pay for it after a credibility hit.

The Investors Takeaway for The Environmental Group

The good news for shareholders is that both issues are identifiable, quantified and arguably temporary. ERP teething problems get fixed, and Suez routes eventually normalise. The bad news is that guidance just dropped by roughly a third roughly six weeks before year-end, which will weigh on the share price and management’s credibility through to the FY26 result.

We think the next genuine test is the FY26 full-year report. Investors will want to see Energy margins printing in line with the historical profile, evidence the ERP system is fully bedded down, and a Baltec revenue recovery as deferred deliveries land in FY27. Anything less and the market will start questioning whether these factors really were one-off.

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