@Slomo like you, I am still learning about this one.

Reaction appears superficial based on revenue drop, EBITDA guidance reduction and low dividend.

We can't expect high earnings quality with engineering firms, so there is always the possibility of surprise - up and down.

Key driver from a scan of the result is the shift from EPC to EPCM. But EPCM, though lower revenue, are also lower risk! So that good.

Nothing in the result that concerns me. I am at a reasonable position in RL having topped up in weakness last year, so will just sit on my hands.

I think the market nerves will be calmed, but just tuning in now too.

Disc: Held in RL and SM

Seems like a buying opportunity to me too, though I still have to do some work on it.

Sure @Slomo - firstly they have declared a 10 cps FF div, well below the PCP, however this was well flagged, with their guidance being a reduced dividend of between $0 and $0.15, so they're towards the upper end of that guidance range.

Next, Revenue and Earnings are down, and cash is up:

That full year guidance of a $330 million midpoint means a similar Revenue number in H2 however their NPAT guidance for the full year of $40 million (the midpoint of $37m to $43m) would mean lower NPAT in the second half - i.e. $40m NPAT for the full year implies second half NPAT of only $14.8m, which would be -41.3% less NPAT than the $25.2 million achieved in H1. That's a much weaker 2nd half indeed.

Even allowing for the fact that Lycopodium management always aim to exceed their own guidance and usually do, that's still likely to be a worse FY25 than FY24 as well as a weaker 2nd half in FY25, so there's plenty of bad news there for the market to get concerned about.

The fact that LYL have so far only dropped back today to just above that $10/share resistance level that they were bouncing along from November to early January suggests to me that the majority of holders are aware of the facts that this is a well run company that will have lumpy earnings because of the one-off nature of the majority of their contracts, and that one half and indeed one year doesn't make or break the investment thesis.

If we look at the FY24 and FY23 full year results...

So, for some context, $330m in FY25 (full year) revenue would be better than FY23 but worse than FY24, and $40m of NPAT for the FY25 full year would be below both FY23 and FY24, so not good. What's probably more important however is the outlook beyond the current year and I believe the outlook for LYL is really good. The company doesn't tend to talk themselves up, but here's a snippet from today's H1 Results Announcement (Lycopodium-Half-Year-FY2025-Results-Announcement.PDF) about their recent acquisition of 60% of SAXUM:

In October 2024, the Company entered into a Heads of Agreement to acquire a majority (60%) interest in Argentinian headquartered engineering company, SAXUM. This acquisition, funded from cash reserves, was finalised on 17 February 2025. The acquisition positions both companies for further expansion and success in key markets. SAXUM holds no debt, and with consistent revenue growth and strong profit margins, will contribute immediately to Lycopodium’s revenue and profitability.

--- end of excerpt ---

They will keep making good moves and the work will come. I often sell out of companies when I think they're going through a rough patch and I reckon their share price is more likely to go lower than higher in the short term, however I won't be doing that with LYL because with the nature of their work, they could announce one or more large new contract wins at ANY time, and their share price could bounce immediately.

So this is one I'm happy to hold through the good and the bad years, and this is clearly not going to be one of their better years, but they will remain my largest single company investment both with my real investable capital and here on SM.

@Bear77 @Slomo I'll just add a few brief points from the call.

CEO Peter De Leo, when questioned about the guidance downgrade attributed this to them not going ahead with two major Barrack (Cu?) projects. He explained that they weren't comfortable with the contractual terms from a risk perspective. That kind of decision is music to my ears, because it is the taking on of too much project risk which ultimately leads to this sector generating poor returns. I'd rather they take the hit on growth and avoid a couple of train wrecks any day.

We also got some further insights into why management consider the Saxum deal to be transformational. First, Saxum has leading expertise is several engineering disciplines, including structural and mechanical which will complement $LYL's process engineering strength. This is exactly the kind of skill synergy you want to find in a deal like this. So, big tick.

Second is Saxum's capabilities in cement and established track record and relationships delivering cement projects for ALL the global cement majors. Comibine this with $LYL's footprint in Africa. Now just have a think about how global population demographics are going to evolve in the next couple of decades and then think about where all the roads, bridges, runways, and structures are going to be buit. Yep. Africa. So, this is a very future facing deal. (I think I'd completely missed that when we commented on the deal last year.)

Peter also mentioned the excellence of engineering education and workforce in Argentina, as well as America's footprint (which we did discuss last year). Engineering talent is a key constraint for engineers, so it makes perfect sense.

I think Peter was a bit peeved at today's SP reaction. As well he might be. On a comparable basis $LYL is once more cheaply priced in its sector, and that for a company which is more diligent and risk averse than many. He said today might be a good time to buy!

Today's result and the SP reaction will just be noise in the journey of this business IMHO.

Have we ever tried to get Peter along to a SM Meeting? @Strawman @Bear77

Happy to hold and be patient with this one.

Disc: Held RL (3.5% - maybe it should be more?) and SM

Thanks heaps for that update @mikebrisy - I haven't been on any calls this week as I'm flat out doing other stuff not related to the share market - I'm going in for the first of three operations tomorrow related to kidney stones - I have 4 of them with the largest being 11mm diameter, and I'm not sure how much I'll be able to get done when I get home on Friday, particularly out in the garden - so just getting stuff done ahead of possibly not being able to do as much for a little while.

You've made some excellent points about Lycopodium and their majority acquisition of SAXUM Mike, and I like that they've only bought 60% of SAXUM at this point because it means SAXUM's founders and management - who no doubt own significant shares in the company themselves - remain invested and onboard - i.e. they are unlikely to be moving on.

The biggest Barrick project that LYL were working on in terms of studies with a view to an EPC/EPCM or EPM contract was the massive Reko Diq Copper/Gold project in Western Pakistan - which I've posted about here before - and I actually do like the fact that they're walking away from that one - when you look at the location of the project and the history of the area itself, it makes West Africa look like a picnic.

The biggest threats are the local Balochistan militia who think the Pakistani government are all take and no give, but the threats of being a stones throw from both Afghanistan and Iran should also not be underestimated.

The Pakistani government have passed legislation that means that the project will have Pakistani military support in terms of security, but that doesn't mean it will be a safe place to work. There is bugger-all infrastructure there and it's a massive project that will take years to build, and the risks are very significant.

I know there is one fundie here in Oz who hold LYL (they were interviewed by the MoM crew last year and I shared the insights here) who were talking as though the Reko Diq contract was already a done deal, and I thought at the time that might be a little premature.

Agreed Mike, good move to walk away from that.

Barrick also have a couple of gold mines in Mali where the ruling military authority in Mali have issued an arrest warrant for Mark Bristow, President and CEO of Barrick. Mali has recently shaken down an Aussie goldie, Resolute Mining (RSG) for US$160m in additional tax and royalties (A$250m), after holding RSG's CEO/MD and two other executives for almost 2 weeks in the country and not releasing them until RSG agreed to pay that sum. Once released, RSG's MD/CEO took personal leave at home in the UK and then resigned. I don't blame him.

So if Barrick had any engineering contracts in Mali to award, those would also be excellent ones to avoid.

I get the sense that you're starting to appreciate the quality of Lycopodium Management @mikebrisy. They are very, very good.

Worth backing IMO.

And no, I've never tried to get Peter to a SM meeting, or even suggested it to @Strawman - but it would be great if we could manage to bag him for a Q&A, for sure.

@Bear77 good luck with the op!

And thanks for the detail around the Barrick projects.

TBH, when I look at a lot of the countries in which $LYL works, I wouldn't put my capital in many of their projects, but of course that's not what they are doing, and their track record proves they have decades of success doing this stuff in these riskier locations.

Yes, I am very impressed with $LYL management. Peter gave a very thorough response to my question about the SAXUM culture and values and how they are working with them.

He also answered another attendee's question about "are $LYL becoming acquisitive and is this going to end in tears, like case "X"?" He explained that $LYL were "reluctant acquirers", that they had been very deliberate and thorough in their due diligence. In fact, he said $LYL did all the due diligence themselves, only drawing on local professionals in each of the jurisdictions where they needed specialist advice (e.g. legal). He totally knocked that ball out of the part.

I also like how they explicitly framed today's dividend: $0.10 to shareholders + $0.28 to SAXUM = $0.38 "normalised". This makes the capital allocation decision explicit, and with an ROE of >40% and ROIC of c. 26%, I am very happy that they reinvest in the business rather than pay me a dividend.

I'm genuinely puzzled by the market response. The capital allocation decision was signalled last year. Today's modest earnings downgrade doesn't justify -11%.

In the long run, the delivery will speak for itself and will move the dial.

So you have to back management. And look at Peter's CV. If you were hiring someone to manage your project management company, that's exactly the kind of CV you'd be looking for.

I'm seriously wondering whether I haven't taken a big enough position on this one. Something to sleep on.

I know it's just one measure, but look at the P/E chart. OK, this doesn't account for the fact the earnings will be lower this year. But even so. On a forward basis most of the peer group are in the range 15-20x.

But it is nice to have this problem - worrying about position size rather than overpaying!

Disc: Held

Good luck with your operations Bear. Without your health in good order, the rest of this stuff is irrelevant.....

Cheers

Returnee Mallers...

Excellent points as always @mikebrisy - I have been freeing up some cash recently in my larger portfolio (the one outside of my SMSF) but haven't sold any LYL at all, so LYL now accounts for just over 40% of that portfolio, so that gives you some idea of how highly I rate the company's management and prospects. As I have mentioned before, my SMSF is in an industry super fund (to keep the costs low) so their rules do not allow me to hold companies outside of the ASX300, and LYL are just outside of the ASX300, with their high insider ownership being a contributing factor because S&P look at the free float rather than the market cap when assessing eligibility criteria for index inclusion.

Agreed that LYL are cheap here, especially as we have the bad news out now - lower NPAT in FY25 - and that bad news being temporary not structural.

I appreciate the notes you relayed from the call today too, I couldn't make that one or any other calls this week.

Regarding Peter's bio, 31 years with the same company says a lot indeed. And that he progressed through the ranks, which you don't do generally if you keep stuffing up, so he has clearly done good work throughout and been rewarded for that good work by a series of promotions culminating in the top job of Managing Director.

His position as Chair of AAMEG is also testament to his knowledge and experience with African mining, where so much of their revenue and profits are derived.

When you delve into what Lycopodium do OUTSIDE of engineering, design and project management, it's substantial:

Lycopodium Limited is divided into several divisions, including: 

• Feasibility Studies and Advisory: Includes services such as feasibility studies and advisory;
• Process Development and Optimisation: Includes services such as process development and optimization;
• Engineering and Design: Includes services such as engineering and design;
• Project Management: Includes services such as project management, project controls, and construction management;
• Commissioning and Operations Support: Includes services such as commissioning and operations support;
• Asset Management: Includes services such as asset management; and
• Performance Assessment and Improvement: Includes services such as performance assessment and improvement.

However they are generally described as an engineering, process, and project delivery company that works in the resources, rail infrastructure, and industrial processes sectors. 

They do however operate under various business names including Orway Mineral Consultants, ADP Marine & Modular, and Mondium, with Mondium being a JV between Monadelphous (MND) and Lycopodium.

The history of Orway MC is particularly interesting:

Established in 1983, Orway began with a primary focus on grinding applications and was instrumental in the wide acceptance of SAG milling in the Australian mining sector.

Operating globally for many decades, the Company gives clients access to an industry-leading database of knowledge and experience that allows Orway to deliver “real-world” services across all mainstream and emerging mineral sectors.

Ultimately, Orway’s objective is to ensure clients can extract optimal returns from their minerals processing activities — maximising productivity, reducing costs and driving profit.

Our team of experts utilises cutting-edge modelling to offer data-driven advice that is customised and practical.

--- end of excerpt ---

You could spend hours looking through these resources: https://www.orway.com.au/project-map and https://www.orway.com.au/case-studies and that's just one division (Orway) and one that most people have never heard of, even many investors in LYL I would imagine wouldn't have gotten into those weeds because they're more interested in the higher profile engineering and design EPC and EPCM contracts (or the more recent EPM/EP&PM contracts that exclude the actual Constuction). But there's a fair bit more to Lycopodium than initially meets the eye.

I'll have a look at where they're sitting after I'm back home Friday and recovered from tomorrow's procedures, and I may buy even more next week. Here on SM they have been over 20% of my total SM portfolio value so I have not been able to buy more, but with today's SP drop they might be back below 20% and I may be able to buy more now.

Keeping in mind that they are so upfront with their guidance, particularly dividend guidance, and the reason for the reduced interim dividend (the SAXUM purchase), buying at around $10/share seems like a no-brainer considering they will not only continue to grow the company and its revenue and earnings over future years, but that they will also almost certainly return to paying higher (i.e. above market) fully franked dividends again - when they don't need to use that cash for business reinvestment as they have just done. So they'll be back to growth PLUS income again. Meaning better than market average with both. So, yeah, big opportunity if you're not already full to the eyeballs, IMO.

Disc: Held (largest position here and in real life).

P.S. Not advice, just a personal opinion.

Thanks @Mallers and thanks also to those who have sent DMs with similar sentiments. Much appreciated. Fairly standard procedures, but first two under GA, and I expect the pain to be different but still present afterwards, at least for a while. TBH, I was very happy to find out this pain was caused by kidney stones because the GP had said that if it wasn't kidneys it would probably be my bowel, and there's a history of bowel cancer in my family, so kidney stones is a very good outcome considering that. There are quite a few others here that have either survived cancer or are receiving treatment for it now, and for those living with cancer now, we all wish you the fastest possible recovery. I've never had cancer myself, but I've had close relatives and friends who have. Having a positive fighting attitude seems to really help. So compared to that, what I've got is nothing much at all. But it will still be good to get it sorted.

@Bear77 I wish you well with your procedure today and I wish you all the best for a speedy recovery. I have surgery tomorrow, so this reporting season is low on my list of priorities at the moment. Cheers Rick.

sorry for the slow reply here, just catching up on this now.

Firstly, let me also wish you all the best with the procedure @Bear77. Kidney stones may be a pain, but at least your rocks are in the right place -- mine are all in my head! Take it easy and rest up.

I've tried a few times in the past to get LYL management to a SM meeting, but never with any luck. I'll try again though.

"I've tried a few times in the past to get LYL management to a SM meeting, but never with any luck. I'll try again though."

@Strawman I actually count that as positive information. It says to me that Peter is focused on running his business! (I did buy some more in RL and SM today, so tbh I'm not unhappy with that, particularly as they diligently asnwered all investor questions on the call yesterday, without grouping or paraphrasing,)

All went well. Back in my room now. Thanks all.

Nice 3 month share price action @Bear77! Great timing with your 3 year pick so far! As you know Lycopodium is also one of my favourites, making up about 5.4% by weight of our RL portfolios. Our cost price is $9.90 so it’s nice to see it moving up from there. They should continue to do well while gold is HOT!!! Cheers!