The most recent insider share transaction was by independent non-executive director, Steven Chadwick, who purchased 8000 shares at $12.20 on 23 August 2024 (2 days after the FY24 results were released) totalling $97,572. Steven currently holds 27,657 shares worth $293,440 at yesterday’s close. Steven is remunerated $102,770 for his role on the board.

In March this year there were some large sales by MD & ED, Peter de Leo (50,000 shares @ $12.85) and ED, Bruno Ruggiero (135,000 shares @ $11.91).

I don’t know whether you can read much into these transactions except; there are many reasons why insiders sell shares, but only one reason why insiders buy shares.

Source: Simply Wall Street

I’m trying to understand more about the SAXUM acquisition to get a better handle on the current valuation of Lycopodium. However, the financial details of the acquisition seem to be missing. I have no idea what LYL are paying for a 60% shareholding in the business. All I can assume is that it is likely to be less than A$68 million, the total cash reserves at 30 June 2024 (since it’s to be funded from cash reserves).

I have no idea how SAXUM is performing financially other than “Holding no debt and with consistent revenue growth and strong profit margins, SAXUM will contribute immediately to Lycopodium’s revenue and profitability and the acquisition supports Lycopodium’s key strategic initiative to further geographically expand its global presence in the Americas.” I wonder how it’s ROE or ROIC compare? Will it dilute LYL’s recent 30% to 40% ROE metric?

I agree with @Slideup’s comment “The part I am struggling to follow with this update is why is NPAT lower than the preceding two years on stable to growing revenue.” When you also consider that “SAXUM will contribute immediately to Lycopodium’s revenue and profitability”, why will NPAT be lower in FY25? Does this mean other parts of the existing business are not expected to do well?

I don’t know what others think, but the lack of financial detail re the SAXUM acquisition seems a bit strange, unless management are still negotiating the price? Then it’s like “Trust us, we know what we are doing”! I guess that’s worked so far!

Tell me if I’m missing some important information here. It makes it difficult to refine the LYL valuation without more financial detail on SAXUM.

PERTH, 18 October 2024

Lycopodium Limited (“Lycopodium” or the “Company”) is pleased to advise that, following a due diligence process, it has entered into a Heads of Agreement to acquire a majority interest in SAXUM, an Argentinian headquartered engineering company. Under the terms of the agreement, Lycopodium will acquire a 60% shareholding in SAXUM with options over the remaining share capital in subsequent years.

SAXUM is a multi-disciplinary engineering and project management services company, founded in 1996, which provides services to the Mineral Processing, Cement & Lime, Manufacturing & Infrastructure and Oil & Gas sectors. It consists of four companies which are established in Argentina,

Brazil, USA and Australia and operates from five offices around the globe – Tucumán and Buenos Aires, Argentina; Irving, Texas; Belo Horizonte, Brazil; and Perth, Western Australia.

Holding no debt and with consistent revenue growth and strong profit margins, SAXUM will contribute immediately to Lycopodium’s revenue and profitability and the acquisition supports Lycopodium’s key strategic initiative to further geographically expand its global presence in the Americas.

Lycopodium’s Managing Director, Peter De Leo, said: “We are extremely pleased to announce this acquisition, which will further enhance our capabilities, expand our service offering and position us more competitively in the global market. SAXUM is a mature business, is culturally aligned with Lycopodium and is an appropriately sized business for us to establish a material footprint in Latin America to complement our Lima office as well as supporting our ingress into the US market.”

Post-acquisition, the SAXUM brand will be retained and the company will continue to be managed by the incumbent leadership team, which will not only secure trust with existing clients but also positions SAXUM for further expansion and success in its markets.

SAXUM founder and CEO, Dr Guillermo Etse, said: “We are thrilled with the opportunity to join the global Lycopodium family. I believe this is an excellent fit for our business, as we too are a technically led, client focused and value centric business.”

The acquisition will be funded from cash reserves, and it is anticipated the purchase will be finalised in Q1 2025, at which point further details will be provided.

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%)