Pinned straw:
21-Aug-2024: Lycopodium (LYL), my favourite ASX-listed company, reported today and the market has sold them down on their report. I have taken the opportunity to top up at $12.28/share (average price paid) and I now hold 10,000 LYL shares and they're currently my second largest real-money position behind WLE, but I fully expect LYL's position in that portfolio of mine to leapfrog the 100,000 WLE that I hold once the LYL share price recovers. In dollar terms I've spent more on my LYL stake now than I have on my WLE stake - after all, LYL is a far superior company than WLE (which is a large-cap LIC run by Matt Haupt at WAM Funds) - WLE is there for dividends mostly, and because of limited downside risk.
LYL is there for dividends and growth. I reckon a lot of why the market has dumped LYL today (currently -12.8%) is because they have declared a dividend that is lower than expected. I was expecting around 46 cents/share and they have declared a 40 cps dividend. However that's not terrible. It means that their dividends for FY24 total 77 cps vs 81 cps for FY23, a drop of around -5% and they're still on a high dividend yield compared to the wider market.
Their cash balance is also lower, but as they said in their report, they are currently very busy and their cash balance moves around a lot depending on the timing of milestone payments on their EPC projects and other factors. Importantly they remain in a very healthy net cash position with zero debt.
All in all, I'm still very happy with this report, especially the outlook statement, remembering that they have very conservative management who like to underpromise and overdeliver.
The only other negative (apart from the slightly lower dividend) is that their ROE has fallen -4% from 44% in FY23 to 42.2% for FY24. Whoop-de-do! It was 29% in FY22 and that was outstanding. The overall margin and ROE trends have been up since FY20 - the Covid pandemic increased their costs and restricted their movements and their access to the sites around the world where they were doing studies and construction in FY21 - as well as during the second half of FY20 and during part of FY22 also. ROE of over 40% is outstanding, even if it has fallen from 44% to 42.2%. That's not material at all.
LYL remain a highly profitable company that specialises in Gold Mill design and construction - so they have PLENTY of tailwinds - with a very high ROE of over 40% (for both FY23 and FY24) who currently have a HEAP of work, and good margin work too. I would have preferred a higher dividend, but the silver lining on that cloud is that I have been able to increase my LYL stake at lower levels when there is nothing structurally wrong with the company - the market just wanted more than what they got. That's what we thrive on, irrational exhuberance and irrational despair - the severe mood swings of Mr Market. LYL were already cheap, and they got cheaper today!
LYL-FY2024-Results-Announcement.PDF
FY2024 Investor Presentation.PDF
I forgot to mention - I sold all of my PLS shares today and rotated all that money into more LYL. I would like to step away from PLS while they are engaging in M&A (acquiring Latin Resources - LRS) because the shorters might actually be right about PLS I'm thinking now (due to this acquisition). So I no longer have any direct exposure to lithium (no, MIN, PLS, or any other lithium miners) however I do have some indirect exposure to lithium through LYL who are a picks and shovels play on lithium and gold, as LYL do feasibility studies and EPC, EPCM & EP&PM/EPM contracts for both gold and lithium miners. Lycopodium do work across other industries, and within other commodities, however they are most active in gold and lithium at this point, and they will always have a large amount of exposure to gold because of their decades of expertise in that sector.
Note: with those acronyms there:
- E = Engineer/Engineering,
- P = Procure/Procurement,
- C=Construct/Construction,
- M = Manage/Management, and
- PM (as in EP & PM) = Project Manage/Management.
With a number of their overseas projects, Lycopodium often do not do the construction themselves, they instead sub-contract that out to, or more likely the project owners directly contract out that construction work to, a local in-country construction company, but Lycopodium still Manage the project, as well as do the Engineering and Procurement.
Avoiding the actual boots-on-the-ground construction work at times is part of LYL's risk management in some of the riskier parts of the globe (as in risky places to construct mines and processing plants and the associated infrastructure). That's why they are one of a very small number of companies that (a) are prepared to take on jobs in West Africa and other high-risk locations, and (b) get those jobs done to their client's satisfaction, usually on-time and on-budget. For many gold miners who operate in such places, they always go straight to Lycopodium whenever they need to build a new mine or upgrade an existing one, because of that excellent reputation that Lycopodium have.