13-Jan-2020: Lycopodium announced that their 40%-owned JV with Monadelphous, Mondium (MND own the other 60% of Mondium) has won their biggest contract ever, valued at approximately A$400 million, with Rio Tinto (RIO) for the design and construction of the Western Turner Syncline Phase 2 (WTS2) mine, located in the Pilbara region of Western Australia.
Hartley's have also released a broker/analyst update on this news - raising their 12-month PT (price target) for LYL from $5.70 to $6.76 (and maintaining their Buy recommendation for LYL). They also explain how LYL treat this revenue from an accounting perspective and how it is likely to affect their profitability going forwards (the impact of the contract on their bottom line). You can access that report here.
MND are a LOT bigger than LYL, so while this is a very big contract for Mondium (around 4 times bigger than their previous biggest contract), and is also a big deal for Lycopodium, it is less material to a company the size of Monadelphous, who have a number of JVs in addition to their usual direct contracting work. This may explain why LYL is up just over 5% since the announcement, but MND finished the week up less than 1%. I hold both MND and LYL.
In late March Lycopodium Limited (LYL) withdrew its FY20 guidance (Revenue $220m; NPAT $14.1m) given the potential for the developing COVID-19 pandemic to impact on its financial results.
LYL has for many years worked in numerous international jurisdictions outside of Australia, most notably across Africa, where it has nearly 30 years of experience successfully managing its operations in a variety of conditions, encompassing internal country politics, disease (e.g. Ebola) and terrorism.
Major projects tracking to plan: LYL’s major projects currently under construction in the field include the Yaouré Gold Project in Cote d’Ivoire for Perseus (PRU) and, via the Mondium JV, Western Turner Syncline (WTS) 2 for RIO.
PRU has recently provided updates advising that there have been no material impacts to its project development activities at Yaouré and that supply chains into Cote d’Ivoire remain open. Work at WTS2 has recently commenced with all indications that RIO (and other iron ore majors) are continuing in a largely business as usual manner with work at iron ore production and project development sites.
Revenue visibility solid for next ~12 months: At 1H20 LYL noted that recent awards of several projects and studies supported revenue growth into FY21, supported by work on the above projects. In the current highly uncertain environment, many companies would no doubt be reviewing their proposed capital expenditure / project development budgets. We expect, that in turn, this will somewhat cloud the demand outlook for LYL’s services during this period of uncertainty.
Positively, given LYL’s strong reputation and history in developing gold projects, the outlook for gold remains strong, with current prices of ~US$1,700oz providing support, though securing project financing will likely continue to present challenges for some.
Forecasts reduced; NPAT FY20 down 20%, FY21 down 14%: We reduce our forecasts, though note uncertainty (upside and downside) around these estimates is at a higher level than would usually be the case.
Buy; Price Target $5.36: LYL is very well-managed with a clear and consistent focus on the long-term sustainability of the business, underpinned by providing a quality service to clients.
With an EV of ~$75m, and average annual EBIT of ~$17m over the last 10 years (albeit with volatility dependent on macro conditions), we believe the current share price contains both downside protection (reported net cash of $111m) and upside risk. We maintain our Buy recommendation. Our price target reduces to $5.36 / share from $6.57 / share previously.
...click on link above for more...
Disclosure: I hold LYL shares.
26-Feb-2020: A solid set of FY2020 H1 (first half) results were released this morning by Lycopodium (LYL):
Lycopodium Limited (“Lycopodium” or the “Company”) has delivered a positive result for the first half of FY2020, with strong revenue reflecting the ongoing delivery of a number of significant projects. This includes the engineering, procurement and construction (EPC) contract for Perseus’ Yaouré Project in Côte d’Ivoire and the engineering, procurement and construction management (EPCM) services contract for West African Resources’ Sanbrado Project in Burkina Faso.
For the six-months ended 31 December 2019 (“1H FY2020”), the Company generated revenue of $110.3 million, representing an increase of 51% on the 1H FY2019 result, and net profit after tax of $8.9 million, slightly higher than the same period in FY2019.
It is expected the second half of the year will be softer, due to the timing of new projects commencing and anticipated delays impacting revenue. On this basis, the Company provides guidance for the full year of approximately $220 million in revenue and NPAT of $14.1 million. The Coronavirus is noted as a developing issue beyond the Company’s control, with any potential impact not taken into consideration in the full year guidance.
The company Directors have approved a fully franked interim dividend of 15 cents per share, payable on 10 April 2020.
Lycopodium’s Managing Director, Peter De Leo, said: “We are continuing to deliver solid financial performance and return for our shareholders, working on a number of sizeable projects around the world. The delivery of Perseus’ Yaouré Project, our largest EPC contract to date, and the award of Rio Tinto’s Western Turner Syncline Phase 2 project, Mondium’s first major project award, both present the opportunity to showcase broad, multidisciplinary capability.”
“Given the scale of projects in delivery over the past few months, across disparate and often challenging locations, the Company’s exemplary safety performance is a credit to our people and reflective of their absolute commitment to achieving a safe working environment.”
The recent award of several projects and studies will support revenue growth moving into FY2021, as new projects ramp up later this year. This includes delivery of the Optimised Feasibility Study (OFS) and commencement of front-end engineering design (FEED) for Sandfire Resources’ new Motheo Copper Project Processing Plant in Botswana, and the award of the EP contract for IAMGOLD Corporation’s Boto Gold Project in Senegal.
Mondium Pty Ltd, Lycopodium’s incorporated joint venture with Monadelphous which provides engineering, procurement and construction (EPC) services to the minerals processing sector, has been awarded a major contract by Rio Tinto, valued at approximately $400 million, for the design and construction of the Western Turner Syncline Phase 2 (WTS2) mineral processing facilities and associated infrastructure to be built in the Pilbara region of Western Australia. Work on this significant project has commenced, and is expected to be completed during 2021.
The Company’s Infrastructure business is delivering a number of material briefs, including the provision of condition surveys and design services for the Australian Rail Track Corporation (ARTC) and the Country Regional Network (CRN), and rail inspection services for various clients including Pacific National, BHPB and Southern Ports Authority.
The Company’s Industrial Processes business continues to leverage its expertise in the delivery of projects and engineering services in the areas of specialty chemicals, pharmaceutical and heat/mass transfer. This includes the successful delivery of the Geo40 Silica Extraction Plant in New Zealand which was completed in December.
Tendering activity remains strong, with projects and studies being targeted across the Company’s operating sectors, including leveraging established relationships to secure ongoing works with key clients.
“We have a strong pipeline of key identified prospects that enable us to leverage our diversified offering across a broad range of projects and geographies,” said Mr De Leo.
Disclosure: I hold LYL shares.
Lycopodium Limited (LYL) has today announced that Mondium (LYL 40% / MND 60%) has been awarded a ~$400m contract with Rio Tinto (RIO).
The contract is for the design and construction of the Western Turner Syncline Phase 2 (WTS2) mineral processing facilities and associated infrastructure and forms part of the ~$1bn investment into WTS2 announced by RIO in November 2019. Work under the contract has commenced with completion expected in 1H22.
Mondium building prudently backed by two industry leaders
This is a significant win for Mondium and an equally significant endorsement of Mondium’s capabilities from a global Tier 1 client in RIO.
Prior to today’s announcement, Mondium’s largest contract award had been its $100m design and construction contract at Talison Lithium’s Greenbushes operations in Western Australia, awarded in May 2019.
Mondium was established by MND and LYL as an incorporated JV in October 2016 specifically to “deliver EPC minerals projects domestically and in selected international markets”.
In its early days, Mondium has been building and testing its capabilities through working on a number of smaller projects. Backed by two shareholders that are leaders in their respective fields we remain confident in the prospects over the longer term for Mondium.
Mondium profit contributions to LYL are recognised on an equity-accounted basis. No revenue from Mondium’s activities will be recognised by LYL, only LYL’s share of Mondium NPAT will be recognised in LYL’s P&L. Mondium’s policies around items such as project profit recognition and distribution of dividends to its two shareholders are a matter for the Board of Mondium.
As a broad guide, on a stand-alone basis, conservatively assuming this project delivers EBIT margins of 8%, this would imply project EBIT of $32m and NPAT of ~$22.4m, of which LYL’s share would be ~$9.0m.
FY20 forecasts unchanged; FY21 up 11%
We maintain our FY20 NPAT forecast at $16.5m while our FY21 forecasts
increase 11% (see page 3 - click on link above for full report).
Buy; Price Target: $6.76
Today’s announcement is a significant step for Mondium, providing a public acknowledgement of the last 3+ years of investment and largely under the radar work (from an equity market perspective) undertaken by its two shareholders. While project delays continue to impact the short-term the outlook remains positive with LYL well-placed to benefit. We upgrade our recommendation from Accumulate to Buy. Our price target moves to $6.76 / share, from $5.70 / share previously.
Disclosure: I do hold shares in both LYL and MND. You can't buy shares in Mondium, but Mondium is a 60/40 JV between Monadelphous (MND) and Lycopodium (LYL), so by owning MND + LYL shares, you do have full exposure to Mondium, which is gaining some traction now. Both MND & LYL are very good companies even without Mondium, with good histories of profitability and dividend payments, but both are even better with Mondium, in my opinion.
The market's reaction to this has been pretty muted in terms of MND, but the much smaller LYL is up around 5.3% (from $5.80 to $6.11) since the announcements. However, Hartley's new 12-month PT for LYL is 9.4% higher still, at $6.76. I suggest that will keep getting raised as Mondium and Lycopodium win more work over the next few years. Superb management, and very much under-the-radar of most fund managers. Some people who used to be with MFDI might remember that LYL was a consistent winner for one very knowledgeable member who particularly liked their lack of liquidity (they can be VERY illiquid at times, but have gotten better in recent years). I used to talk to him about the similarities between MND and LYL, and then the two companies started the Mondium JV together, which we both thought was a positive. I actually thought they had formed Mondium to chase big contracts at RIO's massive Oyu Tolgoi copper and gold mine in Mongolia, but that didn't eventuate (MND did win some work there on their own however). Personally I was surprised at how long it has taken them to land a contract as big as this one with RIO, but as Hartley's report suggests, they have been doing the groundwork and building a base (and a reputation) from which to launch. And now they are launching.
25-Mar-2020: 5:45: FY2020 Guidance - COVID-19 Impact
Withdraws previous guidance, will pay the interim dividend as planned, has very strong balance sheet with no net debt. Their SP is up, not down, after this announcement, suggesting the downside was already priced in.
02-Mar-2019: Hartleys have released an updated Broker/Analyst Report on Lycopodium (post LYL's 1HFY19 results) which is available free via the "ASX Equity Research Scheme", and that report can be viewed here.
For more details on the scheme or to sign up for a free email every Friday afternoon with links in it to that week's free reports - see here.
Hartleys rate LYL as a "Buy" with a 12-month target price of $5.80, which is 16% above yesterday's $4.99 cent closing price.
Disclosure: I don't currently hold any LYL shares directly, but I often do, and will do again.
Lycopodium Limited (LYL) has delivered 1H20 NPAT of $9.0m, representing growth of 5% on 1H19 ($8.6m). An interim dividend of 15cps has been declared, in line with 1H19.
This was another solid result from LYL with management reporting that project execution continued to be strong.
Delays again impact guidance…
Unfortunately, a common theme for LYL, and indeed the broader sector, over the last 12-18 months has been continued delays to project commencements.
LYL has provided updated guidance for revenue of $220m and NPAT of $14.1m. Previous guidance was for revenue of $220m and NPAT “generally in line with FY19” ($16.5m).
LYL notes that guidance has been impacted by delays to new project commencement impacting on revenue. With project performance solid as expected, this implies that initial internal revenue expectations were likely higher than stated guidance. Our FY20 NPAT estimate reduces to be in line with updated guidance.
…though outlook remains strong
LYL advises that recent awards of several projects and studies will support revenue growth into FY21 as new projects ramp up later this year.
Additionally, LYL notes that tendering activity remains strong, as does the pipeline of identified prospects.
The outlook for gold remains strong, with current prices of US$1,640oz providing support for developments, though securing project financing continues to be a challenge for some.
Mondium (LYL 40%) has commenced work on its $400m contract with RIO at Western Turner Syncline, which is expected to complete in 1H22. Meanwhile LYL continues work on its key EPC project at Yaouré for Perseus (PRU). PRU recently announced that the project remains on track to achieve its stretch target of first gold in December 2020.
Cash position very strong
LYL continues to maintain its focus on having a very strong balance sheet. At 1H20 net cash stood at $111m, buoyed by receipt of material payments in advance during the period. We estimate that on a pro-forma basis LYL has net cash of ~$77m (see page 4).
Buy; Price Target $6.57
LYL is a very well-managed business. While project delays continue to impact, the outlook remains positive with LYL well-positioned to benefit.
We maintain our Buy recommendation. Our price target reduces to $6.57 / share from $6.76 / share previously.
--- click on link above for more ---
I do hold LYL shares. They closed at $5.50 today (28-Feb-2020).
"From a minerals perspective Lycopodium has in the past twelve months been active on gold, copper, nickel, cobalt, iron ore, phosphate, diamonds, rubies, lithium and graphite related projects. The current outlook across this basket of minerals is mixed. Whereas the gold price is at historical highs, forecast prices for other commodities is less clear. We believe, given our key strength of being active across a broad range of commodities, geographies and clientele we will be able to take advantage of the opportunities and meet the challenges the market presents. We have a strong pipeline of projects and key prospects that we believe will underpin our operational and financial performance.
Having rationalised our target market in infrastructure to rail, asset management and resource project related infrastructure we see a reasonable market for our services and expect to improve the financial performance in this area.
In process industries we continue to evolve the business to leverage off our expertise in the areas of specialty chemicals, pharmaceutical and heat/mass transfer to participate in existing and emerging opportunities.
At present, the Company expects to generate revenues in the order of $220M with earnings generally in line with those achieved in this past year."
Disclosure: I hold LYL shares.
They have declared a 15 cent fully franked interim dividend, up 25% from the 12 cents they paid for the pcp. Their most recent full-year dividend was 18 cents fully franked (paid in October), so if you add that 18c to this 15c div (declared yesterday), they are on a 6.9% dividend yield based on their closing share price yesterday (which was $4.80). Their grossed up yield (including the full value of the franking credits) is 9.6%.
They are engineering contractors, so its an inherently risky business that can have lumpy revenue and profits, but as such contractors go, they are very good at what they do, and have provided some excellent shareholder returns over the years. Their 1 year TSR (total shareholder return - when capital growth and dividends are added together) is mildly negative (-3.8%), because their share price has come back 10% from $5.33 one year ago, but their average annual TSR over 10 years is +19.2%pa, over 5 years = +9%pa, and over the past 3 years it's averaged +63.6%pa. They have grown their dividends for the past 3 years - see here - and their outlook is pretty good right now I would suggest.
They have said, "At this time we consider we will achieve a full year net profit after tax generally in line with last year."
I expect that guidance will get upgraded at some point, based on prior experience with this company, but even if it doesn't, it's reasonable to expect them to at least maintain their full year dividend (paid in October) at 18c FF, meaning their forward dividend yield (based on their current SP of $4.80) is going to be at least 6.9% FF (or 9.6% grossed up). That's a pretty good annual income stream these days, and they are in the right game at the right ime for some capital growth over the next few years as well.
I am planning to load up over the next week if they stay below $5/share. They don't go ex-div for the 15c interim div declared yesterday until Aprils Fools Day (1st April), and the pay date for that div is April 12th.
13-Jan-2019: New broker / analyst update on LYL - from Hartleys - released via the ASX free broker reports service: http://www.hartleys.com.au/files/companyReports/Lycopodium%20Ltd_190110.pdf
That was released by Hartleys on Thursday 10-Jan-2019, so is very recent, and was in response to Lycopodium (LYL) announcing (on the same day) that they had received a Notice of Award from Perseus Mining (PRU) in respect to the provision of engineering and supply contracts totalling ~US$95m at PRU’s Yaouré Gold Project in Côte d’Ivoire. Hartleys recently attended a site visit to Yaouré. PRU expects that receipt of the exploitation permit and finalisation of the funding package for the total US$264m development cost of Yaouré will occur in the near term (soon).
This award builds on the strong relationship between LYL and PRU and follows on from LYL’s completion of the FEED work for Yaouré and the successful delivery by LYL of PRU’s Sissingué Gold Project in Côte d’Ivoire.
Strong addition to FY20 pipeline: The US$95m (~A$130m) contract is expected to be delivered commencing in 2H19, with completion anticipated in 1H21. With the majority of revenue expected to be delivered across FY20, at this early stage this provides a strong outlook for LYL into FY20 at least.
Hartleys current FY19 forecasts are in line with LYL commentary for a result “generally in line” with FY18. They expect LYL to update this outlook at the time of delivering its 1H19 result.
Hartleys maintain their current FY20 forecasts, while noting that this announcement provides added confidence around these expectations.
Conditions within the resource sector, particularly the gold sector at present, continue to reflect a reasonably positive outlook, which should continue to bring potential opportunities for engineering firms, such as LYL over coming periods.
Hartleys believe LYL ticks a lot of boxes from an investment perspective, the business: has a great track record in project delivery, is well managed, faces a positive macro environment, has a near-impregnable balance sheet ($73m net cash) and is cheap, trading on 5x EV / EBIT and offering a fully franked dividend yield of 6%+.
Hartleys have maintained their Buy recommendation and their price target of $5.80 / share.
LYL closed at $4.90 on Friday (11-Jan-2019).
Disclosure: I often hold LYL shares, but don't currently, having taken profits above $5 a couple of months ago.
Project delays see 10% earnings downgrade
Lycopodium Limited (LYL) has announced that various project delays will impact on its FY19 result.
Previously LYL had guided to FY19 NPAT being “generally in line” with FY18 NPAT ($18.2m). LYL now expects to deliver NPAT of $16.3m, 10% below prior expectations.
Delays impacting LYL had flagged at its 1H19 result that project delays were currently a feature of the market in all geographies in which operates.
We note that Perseus Mining’s (PRU) Yaouré project in Cote d’Ivoire has experienced minor delays in recent months pending receipt of an Exploitation Permit (now received) from the Ivorian Government.
LYL was awarded engineering and supply contracts totalling ~US$95m for Yaouré earlier this year, see our note of 10 January 2019 (“Filling the pipeline”).
FY19 estimates down; FY20 steady We bring our FY19 NPAT forecasts down (from $18.7m) to be in line with guidance.
Importantly today’s earnings downgrade isn’t as a result of any project issues / problem contracts.
The work previously expected to complete in FY19 will now fall into FY20. We maintain our current FY20 estimates (revenue $210m; NPAT $20.9m).
LYL reiterates that the business pipeline remains healthy and the company expects a high level of activity across FY20.
Buy; Price Target $5.75 While any downgrade is disappointing, today’s announcement is both relatively minor in scale and results from timing related issues as opposed to any underlying contract problems.
Our view of the company and its investment credentials has not changed. The business has a great track record in project delivery, is well managed, faces a positive macro environment and has a very strong balance sheet ($60m net cash).
We maintain our Buy recommendation. Our price target reduces marginally to $5.75 / share from $5.80 / share previously.
--- Hartleys Update ends ---
Disclosure: I hold LYL shares.
28-Oct-2018: Every week, the ASX releases some free broker / analyst reports on ASX-listed companies (usually the smaller ones). This week (ending Friday 26th October) those reports included one from Hartleys on Lycopodium (LYL). The report is recent - dated 24-Oct-2018, and their 12-month price target for LYL is $5.80 - being 32.7% above the $4.37 that LYL closed at on Friday (26-Oct-2018). Click on the link below to access the free report.
10-Apr-19: Yesterday evening (after the market closed), Lycopodium (LYL) lodged a company presentation with the ASX announcements platform - which can be viewed here.
It was delivered yesterday at the the UBS Australian Emerging Companies Conference Series - Mining Services, which was held at UBS' Sydney Office. That Conference series continues today with a Technology focus, then resumes on May 28th with FinTechs presenting. Healthcare and BioTechs are on May 29th. These are all compact one-day seminars in which senior executives of emerging companies get to present to UBS and their invited clients. Yesterday, the focus was on emerging Mining Services companies. Apart from LYL, I'm not sure who else presented.
In yesterday's presso from LYL, they give a very thorough overview of the company, their capabilities, values, and track record, including naming a number of their completed projects to date. It's 67 pages long, but heavy on pictures, not words, so it's easy enough to scroll through. They have traditionally mostly focussed on gold, and also copper and nickel to a lesser extent, although they have worked on projects that involve diamonds, iron ore, and other base and precious metals.
From Slide #66:
They also have a JV with Monadelphous. The name of the JV is Mondium and it is Australian-focussed and targets large-scale EPC projects. Here's Mondium's website: http://www.mondium.com.au/
And here's Lycopodium's website: http://www.lycopodium.com.au/
Disclosure: I hold shares in LYL and MND.