It’s been a bit quiet on Strawman since Easter. My two lovely granddaughters have kept me busy playing Sequence, drafts, checkers, chess amongst other things. I don’t even get the chance to knock out a straw before breakfast because they’re in our bed from 6am! :)

It hasn’t stopped me from adding a few shares though. I notice there’s been a lack of interest in Lycopodium shares by the market since it went ex-dividend on 25 March 2024. When a business paying a 7% fully franked dividend goes ex-div you might expect a decent pull back. However, yesterday Lycopodium traded at $11.00, and at that price I think it’s a BUY.

I maintain my valuation of $15.00 for Lycopodium shares, and I am even more bullish on the business than a month ago. I’ve been adding more shares at just over $11.00. Buying at today’s share price I think you could expect an annual return of 18% per year. The share price only needs to grow at 8% per year to achieve that.

Gold is trading at record prices and most of Lycopodium’s projects are in servicing gold miners in Africa.

1H24 Presentation

With a strong pipeline of studies and projects in delivery, the Company remains on track to achieve the previously advised full year guidance of approximately $345 million in revenue and NPAT in the range of $46 to $50 million. The total value of capital projects currently in delivery is in the order of A$4 billion.

Bell Potter Unearthed Conference Presentation

Assuming mid-range NPAT of $48 million ($1.21 per share) Lycopodium is trading at 9 x FY24 earnings. I think Lycopodium’s guidance is very conservative and I expect guidance might be upgraded toward the top end in the next month or two.

What I really like about this business is the ROE has been increasing for several years and now sits on c. 40%. it has achieved this with zero debt and increasing cash reserves. The balance sheet is impeccable! While it is paying out a massive dividend of c. 7% fully franked, it continues to reinvest 30% of its earnings back into growth at a 40% internal rate of return. You get all this for a low PE of just 9 times NPAT. It’s a bargain in my eyes, even at an historically lofty share price of $11.00.

Source: Commsec Website

It’s important to remember that Lycopodium is a cyclical stock, and it will follow the fortunes of the resource industries, particularly gold. I think the outlook for the business should remain strong while the gold price is near record highs.

Held IRL (4.8%) and adding

Lycopodium released its FY23 AGM Presentation this morning. Sandwiched in the middle of the presentation was a slide titled “Current Snapshot” which contained FY24 Guidance:

How does this compare to FY23?

Management expect FY24 Revenue to be $345 million which would be up 6.5% on FY23 revenue of $324 million.

Management expect FY24 NPAT to be flat to 7% higher than FY23 NPAT of $46.8 million

Importantly, FY24 ROE should remain between 40% and 44% which is exceptional, particularly when you consider LYL has a lazy $82.4 million of the $113 million in total shareholder equity sitting in cash.

LYL is obviously building some sort of ‘moat’ around their expertise to be increasing ROE every year to this level without the need for leverage and with so much lazy cash sitting almost idle on the balance sheet. Since 2020 LYL has definitely landed in a sweet spot, and this looks set to continue into the near future.

I also like that LYL management are very forward thinking and try to seperate themselves by focusing on a unique suite of specialised engineering and professional services rather than trying to compete in the mainstream. The slide below is an example of how management is always thinking forward to stay ahead of the pack.

As @Bear77 has already mentioned LYL is also diversifying away from their heavy reliance on expertise to the Western African gold mimers, which @Bear77 pointed out is an area where they are also specialists in the field of electrical engineering.

This slide demonstrates LYL have several irons in the fire, and are are carving out a unique niche in each. I’m liking this business more each year, and have continued to add more shares to our portfolio.

Better leave something for @Bear77 to talk about!

Disc: Held IRL (2.6%)

Lycopodium just released a very pleasing FY22 results announcement. I couldn’t find the percentage improvements over last year, so I made a few quick calculations below the table:

Revenue +43%

EBITDA +71%

NPAT +92%

EPS + 92%

Cash +31%

…and a nice juicy ROE of 29% which puts LYC back on track with the good ol’ days of 2013!

Outlook:

Given the general outlook and level of committed work, we expect our financial performance in FY2023 to be broadly in line with that achieved in FY2022. We do however undertake to provide further revenue and profit guidance as part of our Annual General Meeting update in November.

A quick valuation on my StockVal spreadsheet puts the valuation up to approx $12 after lifting ROE from 20% to 29%. This was quick and dirty as I still need to rework 2022 equity values, payout ratios etc. I’m just after a ball park for when the market opens.

Disc: Small holding IRL (0.4%)