Friday 8th November 2024:

The Overlooked Way to Play the Commodity Cycle (Baza Capital) Money of Mine [08-Nov-2024 podcast]

Some of the chapters:

0:26:26 Unloved Mining Services companies

0:28:36 Euroz Hartleys

0:33:59 Lycopodium

0:42:58 Vysarn

Disc: I hold LYL shares.

19-Sep-2024: Lycopodium (LYL) has gone ex-div this morning for a 40 cents/share fully franked dividend, so their SP will likely drop by more than 40 cents - they usually drift sideways or down when the go ex-div, until or unless they announce a guidance upgrade (which they have a history of doing) or one or more decent new contracts.

LYL is my second largest real-life holdings - and one of the two largest holdings I have here (I'm at my 20% limit here) so I already hold plenty, but for anyone who has done the work, likes the company, and wants to hold some - or more than they do now, the next few weeks might present a reasonable opportunity to buy some as other people who trade in and out for Lycopodium's very healthy (and generous) dividends rotate into something else.

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

FY2024 Shareholder Report.PDF

FY2024 Financial Report.PDF

Please! I sold LYL out of my largest portfolio in June (liquidated that entire portfolio) and I've been looking to buy back in - in a different portfolio - but they won't pull back!!

I can't hold them in my super because it's within an industry super fund and LYL aren't in the ASX300, so do not qualify for inclusion there, and the only place I currently hold them is here in my SM virtual portfolio (where they remain one of my largest exposures) and also in the one-stock-portfolio I "manage" for our two children. But I want exposure to them IRL again - and they're not giving me that chance at this point.

I can only imagine they'll just go higher in the lead-up to their next dividend - which will be another juicy one - but I'm going to hold off because they CAN bounce around on low liquidity every now and then, and I'd hate to pay top dollar now and then see them drop back a couple of dollars soon afterwards...

Patience is often rewarded, but it ain't easy!!

Today (Friday 22nd December 2023): TWO New Contract Awards:

https://www.lycopodium.com/wp-content/uploads/2023/12/Award-of-Baomahun-Gold-Project-EPCM_-Announcement.pdf

[Award of the Engineering, Procurement and Construction Management (EPCM) Services and reimbursable Supply contract for the process plant and associated non-process infrastructure for FG Gold Limited’s (FG Gold) Baomahun Gold Project in Sierra Leone, advancement of the project subject to FG Gold attaining financial close. The contract includes detailed engineering, procurement of equipment and materials, construction management, preoperational testing, and commissioning. This EPCM Services and Supply contract is valued at approximately A$100 million, with work anticipated to commence in Q1 2024.]

https://www.lycopodium.com/wp-content/uploads/2023/12/Yanqul-Copper-Gold-Project-EPCM-Contract_-Announcement_FINAL.pdf

[Award of the Engineering, Procurement and Construction Management (EPCM) services contract for the Yanqul Copper Gold Project in the Sultanate of Oman, being developed by Mazoon Mining LLC (MMC), a subsidiary of Minerals Development Oman SAOC (MDO), the flagship mining group in the Sultanate of Oman. This EPCM services contract is valued at approximately A$45 million. It is anticipated works will commence in Q1 2024 and conclude in Q2 2026.]

Friday 11th December 2023:

https://www.lycopodium.com/wp-content/uploads/2023/12/Lumwana-Copper-Mine-Expansion-Project-Contract_-Announcement_FINAL.pdf

[LYL were awarded a Contract from Barrick Lumwana for the Feasibility Study and Basic Engineering for the expansion of Barrick’s Lumwana Copper Mine in Zambia, valued at approximately A$19 million, with the project having a capital cost investment of almost US$2 billion. Work has commenced, with the accelerated development program targeting completion of the Feasibility Study by the end of 2024 and expanded process plant production anticipated in 2028. It pays to note that studies like this FS (feasibility study) and basic engineering contracts often lead to larger EPCM contracts like the ones above announced today.]

Further Reading: 14th November 2023 AGM Presentation: PowerPoint Presentation (lycopodium.com)

Disclosure: I hold LYL in three of the four real money portfolios that I manage and I also hold them here in my Strawman.com virtual portfolio. They are a high conviction holding. The only reason they are not in my fourth real money portfolio (my SMSF) is because they are not yet in the ASX300 Index, which is a prerequisite of the industry super fund (CBUS) that I use for my SMSF. If I could add them to that portfolio, they'd be in there as well.

See also: https://strawman.com/reports/LYL/all

And:

https://fggoldmining.com/projects/baomahun-gold-project/

And:

https://www.omanobserver.om/article/1139784/business/economy/revenues-of-ro-500myear-seen-from-key-oman-copper-gold-mining-project [08-July-2023]

And:

https://www.lusakatimes.com/2022/10/31/barrick-hoping-to-extend-lumwana-mine-to-2042/ [31-Oct-2022]

Source: Facebook

Source: BARRICK GOLD TO EXPAND LIFE OF LUMWANA MINE ~ (znbc.co.zm) [8-July-2023]

Source: Mining Weekly - Lumwana copper mine expansion, Zambia – update [15-Dec-2023]

The transformation of Lumwana from a marginal copper asset into a world-class operation demonstrates the commitment of Barrick to expanding… | Instagram [27-Oct-2022]

https://www.reuters.com/markets/commodities/barrick-ceo-says-zambias-lumwana-mine-life-could-be-extended-2060-2022-10-26/ [27-Oct-2022]

Barrick to spend $2B on Lumwana expansion - Mining Magazine [04-Oct-2023]

Friday 10-Nov-2023: Firstly, I've written plenty on LYL previously - which you can read here: https://strawman.com/reports/LYL/Bear77 including a straw titled, "Income, Growth, Both?" - which you can probably find towards the top of the pile here: https://strawman.com/reports/LYL/all

Having failed to highlight the insider ownership with EGL in my recent straw on them (and a few other things that Harley Grosser pointed out in his own recent Livewire Markets "wire" on EGL: https://www.livewiremarkets.com/wires/an-undervalued-small-cap-growth-story), I thought I'd kick off this LYL update with that insider ownership data, before I forget again:

Lycopodium (LYL) has HEAPS of insider ownership, so plenty of shareholder alignment:

Source: Commsec data plus Lycopodium's FY23 Annual Report and their FY23 Shareholder Report.

The Board and Management own 36% of the shares on issue, which reduces the "free float" and is a factor in why it has taken LYL so long to be included in the All Ords Index (XAO) - they were only added in March this year. They are still not in the ASX300 index.

They also don't like issuing new shares very often - in fact the shares on issuee have been stable for the past decade - as highlighted by me in green below:

As highlighted by me in blue at the bottom of that Commsec screenshot above, LYL are trading at a reasonably low PE compared with their average PE over the previous decade. Their PE Ratio was 6.5 on June 30, and it's just over 8 currently. They are NOT expensive.

However, they are relatively small, and they can be quite illiquid at times, with usually less offers on the SELL side and more bids on the BUY side, which I assume is because the majority of LYL shareholders aren't looking to sell their shares. As a result of the low liquidity and the gaps between the bids and between the offers, their share price can bounce around quite a bit on relatively small volume (of shares traded).

Screenshots taken from Commsec and added to by me.

They do pay excellent fully franked dividends, with their trailing dividend yield being over 8% (plus the value of their franking credits, so over 12% grossed up to include the full value of those FCs).

Their dividends rise along with their earnings, and their earnings have been rising - see the top of the previous screenshot above - the Earnings chart - and now take a gander at the ROE chart beside it - how's that for a services company that is involved in engineering and construction - an ROE of over 40% - and rising!!

Now - while their shares on issue haven't changed for a decade (it's been 39.7m shares every year, as shown above), they are going to be issuing a small amount of extra shares to management as share-based payments and so forth, as explained here:

Source: Page 74 of Lycopodium's FY23 Annual Report.

The company has been ASX-listed for almost two decades, mostly with the same management and Board who include the company's founders, so they have been doing this for some time, and they know what they're doing.

I found some good stuff in their recent Shareholder Report (released with their FY23 Full Year Results in August):

Above, we see that they have become diversified across Infrastructure and Industrial Processes, in addition to their traditional core sector, Resources.

Below we also see that they have diversified across geographies (Regions), however it's worth noting that Africa remains a large part of their revenue, and they remain very active in West Africa in particular.

West Africa has plenty of risks, and LYL have become impressively proficient at managing those risks, which is why they continue to specialise in West Africa, where many other industry players (who do similar work to LYL) would prefer not to work. This also means that LYL can and do charge a premium to compensate them for taking on those risks, so as long as they continue to manage those risks as they have done to date, that work will remain very profitable for them.

LYL work for some very big players like Barrick Gold Corporation - the world's second largest gold producer - LYL-Award-of-Reko-Diq-Copper-Gold-Contract.PDF [12-June-2023] as well as some very small players like the tiny (A$14.7m) Toubani Resources Inc. (TRE.asx), which is an ASX-listed and Canadian-listed gold exploration and development company primarily focused on the development of the Kobada Gold Project in Southern Mali (Toubani are HQ'd in Canada, not Australia, despite being ASX-listed) - Lycopodium-Appointed-as-Lead-Engineer-for-Kobada-DFS-Update.PDF

Lycopodium's Office Locations Globally:

Here's some of the projects they were involved in during FY23:

As you can see, most were in the Resources sector, but there were also some in Infrastructure and some in Industrial Processes. That is page 26 of their FY23 Shareholder Report, and they provide details of all of those projects on the pages listed above. I'll give you just one example - the CSL Seqirus "Banksia Flu Cell Culture Manufacturing Facility" Project - which is on page 40 of the report (as indicated above):

For details of the other projects, click on the link above to access the full report.

That'll probably do for tonight.

Pacific National, another LYL client.

https://www.lycopodium.com/

Disclosure: Yep, I sure do hold LYL shares.

27-Aug-2023: Yesterday I highlighted GR Engineering Services (GRES, GNG.asx) and their income and growth history and future prospects. Today it's Lycopodium (LYL.asx).

So there's the income - LYL's current 12m trailing dividend yield is 7.9% plus franking, and all of their dividends have been fully franked. That's a grossed-up trailing yield of 11.2% (including the full value of the franking credits). The trend here is also your friend. Their dividends are increasing along with their revenue and earnings. Their revenue and earnings can be lumpy due to the one-off nature of much of their project work, however their downtrends don't seem to last long, and the overall trend is up.

Here's their interim results summary released in Feb for the 6 months ending Dec 31st, 2022:

And here's their full year results published last week for the 12 months ending June 30, 2023:

Source: LYL-FY2023-Full-Year-Results-Announcement-22-Aug-2023.PDF

See also: LYL-Investor-Presentation-FY2023-22-Aug-2023.PDF

And we have share price growth as well:

And here's that graph I showed yesterday in the straw on GNG that highlights the return from the same amount invested in GNG, LYL and the All Ords Index 10 years ago:

GNG has returned 6.6 x the All Ords Accumulation index, just in share price appreciation, with all the fully franked dividends on top of that. LYL has returned 3 x the All Ords return, plus dividends (dividends are already included in the green line coz the XAO is the All Ords Accumulation index which assumes all dividends are reinvested back into the underlying companies whereas the Blue and Orange lines for GNG and LYL do NOT include dividends).

The thing to note however is that LYL are really hitting their straps at this point in time, with rapid revenue and earnings growth, big dividend rises, and big share price movement to boot. GNG have done it more consistently, however LYL are catching up now.

Both companies do similar work, with both specialising in the design and construction of gold processing plants (mills) and both also do other commodities as well as gold, and both have other divisions as well with their Mineral Processing Engineering & Construction division being their main revenue driver. That project work is lumpy, but they're both very good at it and they are usually busy. Both companies have very high insider ownership as well.

In LYL's case, it's 36% Board and Management ownership, and a notional 39% free float, but they're just as illiquid as GNG are, so selling a heap of shares in a hurry will almost certainly move the share price, and it could be by quite a bit, depending on how many you need to sell and how fast. Once again, suitable for patient money.

You can see there that their market cap is very similar to GNG and they actually have a similar amount of cash in the bank ($82.4m vs GNG's $86m at June 30th), however LYL, unlike GNG, do actually have some debt, and it's a trade-off, because while they have manageable debt, they are also growing faster and have a higher ROE (44%). They are more profitable than GNG are.

They are also more global, with more full-time employees than GNG and with more offices that they work out of. They do a lot of work overseas, especially in Africa, and particularly West Africa, where there are more risk factors to consider, but LYL have become very good at that. More on that in a minute.

OK, now to their revenue sources, first by sector and then by geography:

The first slide shows little change from FY22 to FY23, however the "...by Geography" slide shows that they are relying less on Africa (in FY23 vs FY22) even though over half of their revenue is still derived from work done in Africa. Another way of looking at it is that they (Lycopodium) are now getting more work here in Australia.

The majority of GNG's revenue is derived from work here in Australia, although they do work overseas as well, just less than LYL do. Most of LYL's work is done overseas or else for clients who have mines/processing plants located overseas, and that's mostly still in Africa, and in West Africa in particular.

The next slide slows you the status of their major projects, and also gives you a fair idea of what commodities they are into; it's mostly lithium, gold and copper to a lesser extent, as well as mineral sands.

The next slide shows you the total of all projects and studies that LYL are working on currently, split into commodities, and we see that Diamonds/Gems feature now as well (below), although not in the previous slide - which was just their "Major" projects - so we can assume that those Diamonds/Gems Projects and Studies are smaller in nature. I do note that "De Beers Group" is listed as one of LYL's clients (two slides up from here).

Finally, the Outlook and Strategy slide:

OK, so that's just 12 slides from the deck of 26 - you can view the entire deck here: LYL-Investor-Presentation-FY2023-22-Aug-2023.PDF

I recommend having a look at slides 16 through 18 on "Business Improvements" and "Innovative Thinking", and also slides 12 through 14 on Lycopodium's FY23 Operational Highlights Details.

If you're interested.

Summary: Lycopodium (LYL) is a microcap that has low liquidity (not too many buyers or sellers much of the time and often substantial gaps between the price points of both the bids and the offers, and more often than not a reasonable gap between the highest bid and the lowest offer) that is suitable for patient money that is looking for income plus growth. The company is highly profitable (ROE of 44%), paying very good dividends (which are growing), and the business is growing at a good clip, and is well managed by a Board and Management who own 36% of the company - which provides good shareholder alignment which usually results in positive shareholder-friendly outcomes (such as good total shareholder returns).

Their revenue is diversified across commodities and across geographies, and they are expanding their offering beyond traditional engineering and construction project work.

One feature I have noticed is that a couple of recent contracts (in the past year) have been EPM contracts rather than the traditional EPC or EPCM contracts. E=Engineering. P=Procurement (sourcing everything needed for the project to be constructed and commissioned). C=Construction. M or PM=(Project) Management. So with an EPM contract (sometimes called an EP and PM contract), LYL do the design (E), procurement (P) and they manage (M) the project, but another company does the actual construction work, usually a local company that is based (HQ'd) in the country where the project is being constructed. This is likely another form of risk management. Use a local company to do the actual construction work, employing locals, and LYL manage the whole process and clip the ticket on everything. One example of where they have done this is with the Goulamina Lithium Project in Mali - see here: Award-of-Contract-for-the-Goulamina-Lithium-Project.PDF [14-Nov-2022]

Anyway, while a lot of their work is one-off project work, so their revenue and earnings will be lumpy at times, they are very good at what they do, and the industries that they work in recognise that, so I have good reason to think they'll stay busy and keep growing.

They don't overpromise and then undeliver; they give conservative guidance and then try to beat it, often positively upgrading their guidance as the year progresses and then still beating it on at least one metric.

Disclosure: Of course I do hold LYL (and GNG) in my real life portfolios as well as here on SM.

Further Reading:

https://www.lycopodium.com/

Our Story | Lycopodium Limited

What We Do | Lycopodium Limited

Our Engineering and Project Management Principles | Lycopodium

Where We Work | Lycopodium Limited

Case Studies (lycopodium.com)

Investor Relations | Lycopodium

24-Aug-2022: As I said in my "Strategy & Outlook" straw for Macmahon (MAH) early this morning (about 2am), the Lycopodium (LYL) result was going to be good. It was. You can view the "#Great FY22 Result" straw by @Rick here: https://strawman.com/reports/LYL/Rick?view-straw=19458 and a "#Management" straw by @Scott here: https://strawman.com/reports/LYL/Scott?view-straw=19464

@Scott has also updated his valuation for LYL: https://strawman.com/reports/LYL/Scott

I think their dividend increase was well hidden in their announcements and presentations, it was certainly not highlighted by them, but it's definitely one of the major positives, and there were a lot of positives.

As I said last night (or early this morning), I hold LYL in a portfolio that is structured partly to provide a decent income stream, and LYL are certainly contributing to that. A dividend yield of 9%, and a grossed up yield (including the full value of the franking credits) of 12.6%. And there's capital growth as well, because the company is growing revenue, profits, EPS, etc. at a very decent clip. There's a LOT to like about Lycopodium. $100m cash in the bank. 29% ROE. 39% of the company is owned by their Board and Management. Lots of skin in the game and terrific results.

Investor Presentation - Full Year Results FY2022

FY2022 Annual Financial Report

FY2022 Shareholder Report

FY2022 Full Year Results Announcement

About Us | Lycopodium Limited

Investor Relations | Lycopodium

Lycopodium Limited | The Science of Engineering, Maximising Commercial Value

They are the quiet achievers. They just get on with the job and deliver. No promotion, no blowing their own trumpet, no fanfare, just brilliant management and a wonderful company that does everything right.

Disclosure: I hold LYL shares.

19-Nov-2021: Lycopodium, once the engineering arm of Monadelphous many moons ago, and involved in a JV with Mono's again now (called Mondium) have seen a decent share price move since they held their AGM yesterday. They closed up +7.4% today at $5.21, after having risen +1.8% yesterday. They closed at $4.44/share on Wednesday, but have finished the week at $5.21, some +17.3% higher. I do hold LYL shares (and MND shares). I also hold GNG shares. GR Engineering (GNG) and Lycopodium (LYL) both specialise in designing and building gold processing plants. That's their specialty, although both also work with other commodities and in other industries. GNG do most of their work in Australia, and LYL do most of theirs in Africa. The following shows LYL's breakdown of revenue by sector and geography:

With 90% of their work coming from the Resources sector in FY2020 and 87% in FY21, it is certainly the main game for Lycopodium:

However, I believe their infrastructure division is underappreciated and has plenty of potential:

And they also do other stuff, like working for CSL, on facilities for base vaccine component production, and on plasma and blood product production facilities...

LYL ticks a LOT of boxes for me. Firstly, they are a company that is solving a problem, i.e. providing services that are clearly needed and are in demand, and what they do is something that I understand - i.e. engineering, design, procurement, construction, and management (including construction management) - so EPC/EP(C)/EPCM work.

They work in sectors that I understand, and sectors with good tailwinds for the most part too. And they are GOOD at what they do, hence they win a lot of repeat work from clients.

They have a top notch Board and Management team, with plenty of skin in the game, so their interests are aligned well with ordinary retail shareholders.

41% of the company's shares are held by their Board and Management. 30% is held by Insto's, leaving only 29% for the rest of us (retail investors). They can go nowhere for months and then have quite big moves (like today), on relatively low volume often, because of that lack of liquidity. They are a microcap (currently just under $200m market cap) company with a small free float, so they can be very thinly traded. On the 2nd and 4th of this month (November 2021), less than 1,000 LYL shares traded over the entire day. The volume for those two days was 299 and 573 shares respectively. While they did move up +7.4% today, that was on volume of only 32,886 shares. That's 32 thousand shares, not 32 million shares. They are very illiquid. And I do like that as well. It means you can quite often pick up shares at low prices when there is no good news and people aren't interested in buying them.

I also like their solid balance sheet, with minimal debt, and the reasonable ROE.

They have their "Mondium" JV (joint venture) with MND (Monadelphous Group) which tackles some fairly large projects, like this one for RIO:

But what they do best, in my opinion, is design and build gold processing plants, on time, and on budget, even during a global pandemic, like this one:

That's the Yaouré Gold Project in Côte d'Ivoire that Lycopodium have just delivered for Perseus Mining (PRU). They won that project award after successfully delivering the Sissingue gold project for PRU, and then completing the definitive feasibility study (DFS) and the front-end engineering and design (FEED) for Yaouré. I don't like investing in gold miners who work only in or predominantly in Africa or some of the other less stable and less predictable parts of the globe, however I do admire Lycopodium's track record of successful project delivery of gold processing plants in Africa. I guess their involvement is usually at the front end of a project's life cycle, and the "sovereign risk" issues tend to pop up further down the track, after the gold plant has been in production for a year or three and the local government wants a larger slice of the pie. When the excrement does hit the air blower, LYL are usually elsewhere working for someone else. Such is the nature of shorter-term contracting work. And that is clearly a risk worth mentioning. It can be a long time between drinks - in terms of very large projects, however I have found that both LYL and GNG have managed to diversify their revenue away from purely gold miners in recent years and have navigated through a variety of different operating conditions with aplomb, i.e. apparent ease. It hasn't stopped them being sold down on occasion, but GNG is now flying, and LYL are just taking off it seems.

But then, with their liquidity issues, it can be hard to tell. Probably need to wait until LYL get over $6 with conviction to call an uptrend. Those charts are over 5 years, and over 10 years the picture looks different, as LYL were trading at over $6 (and up to $7.31) in 2012. Still, as a gold bug myself, and a holder of both GNG and LYL shares in one of my real life portfolios (my income portfolio) - and also here in my SM portfolio - It's good to see the positive SP movement. And the great dividends continue as well. Based on their closing share prices today, the trailing yields for GNG and LYL are 6% (5.97%) and 4.8% respectively, PLUS franking, and both are paying fully franked dividends, so the grossed up yields are even higher. If you can handle the lack of liquidity, and the lumpy nature of a large part of their annual revenue, there is a lot to like about these two little engineering companies. I'm not sure I'd be buying much more GNG up here, but LYL could well have further to run.

Disclosure: I hold LYL, GNG and MND shares.

Further Reading (source of graphics/images used in this straw, other than the Commsec charts): Lycopodium 2021 AGM (18-Nov-2021) Presentation

Further Presso's: Presentations | Lycopodium

Case Studies: Case Studies (lycopodium.com)

Website: Lycopodium Limited | The Science of Engineering, Maximising Commercial Value

27-Aug-2021:  Euroz Hartley's Analyst Harry Stevenson has maintained his "Buy" call on LYL, but lowered his PT (price target) from $6.62 to $6.50.  LYL closed at $4.75 on Friday (03-Sep-2021).  I have attached the update.

Brief Extract:

"We have updated our forecasts to reflect FY’21 results; consequently the price target decreases to $6.50/sh. With strong tail winds in the resources sector and healthy studies pipeline we think LYL can trade strongly through FY’22 albeit from a low base."

Disclosure: I hold LYL shares and I purchased more during the past week in one of my RL portfolios.  I have written about them here and also in the "Gold as an Investment" forum.  [You'll have to scroll through that thread to find relevant posts on LYL - warning: it's a long thread!]  I have also discussed Lycopodium in relation to GNG (GR Engineering) who do similar work.  They both specialise in the design and construction of gold processing plants.

19-Apr-2021:  LPD: Lycopodium to complete EPCM for Lepidico 

15-Apr-2021:  Award Of Ahafo North EPM Contract for Newmont

26-Mar-2021:  Award Of Seguela Contract for Roxgold

06-Jan-2021:  Award of Bombore EPCM Contract for Orezone Gold Corporation

01-Dec-2021:  Award of EP Contract for Sandfire's Motheo Contract (T3 Copper-Silver Project), located in Botswana’s Kalahari Copper Belt

LYL is getting busy again.  GNG and LYL mostly design and build gold and copper processing plants, although they do other stuff also.  GNG mostly work in Australia.  LYL are also based here, but LYL mostly work in Africa and other places overseas, like the Middle East and South America, all of the higher risk places where they can charge more because of those risks and logistical difficulties.  However, with decades of experience and an excellent track record, they rarely stuff up, and they always seem to make money on their projects/contracts.  I hold both GNG & LYL, and both have had a pretty good 12 months.

March 2021:  Euroz Hartleys: Lycopodium Ltd (LYL): Half Year Results

Analyst: Harry Stevenson - Industrials Analyst, +61 8 9488 1429

Price Target: $6.62/sh, Recommendation: Buy

Half Year Results

Investment case

Lycopodium has recently released half year results which were inline with expectations. With completion of Yaoure in December margins remained strong with NPAT at 8.8%. With full year guidance of “approximately $160m in revenue and NPAT in the order of $12m” our focus is increasingly shifting towards FY’22. We are looking towards an emerging EPCM/EPC boom with the with roll out of covid-19 vaccines globally, we expect projects which were previously delayed to be greenlit. This outlook is supported by strong gold prices and record iron ore demand which we expect to continue through FY’22. In the background Lycopodium’s JV with Monodelphous – Mondium looks set for a further growth through FY’22 with completion of the Western Turner Syncline; which should drive stronger margins. Our price target reflects our growing confidence in the EPCM outlook.

Key points

Lycopodium recently reported half year results, key highlights were as follows

• Revenue of $71m, EBITDA of $10.6m and NPAT of $6.3m (EHSL $5.7m).
• Margins were heathy 8.9% at the NPAT level and towards the top end of historical rates between 5%-10%.
• Balance sheet remains strong; cash of $84.4m and net assets of $82.1m.
• Negative operating cash flows of $15.7m – expected given build-up of working capital at 30 June, we look for cash balance to normalise to ~$67m at full year.
• A fully franked Dividend of 10c per share declared (ESHL 9.3c); we now look for 20c full year distribution.
• Contribution from Mondium (LYL’s 40% JV with Monadelphous) up 15% HonH (half on half) and 155% on PCP, we expect this contribution to become more meaningful through FY’22 ($4.2m).
• Management have provided full year earnings guidance of “approximately $160m in revenue and NPAT in the order of $12m” – in line with our previous FY’21 forecasts of $160m Revenue and NPAT of $11.7m.

Outlook

• Demand for EPC/EPCM contractors through FY’21 and into FY’22 is expected to strengthen with the resources sector set to continue to benefit from both the Gold and Iron Ore prices.
• 12 month Price Target of $6.62 is a 9x multiple on FY’22 EBIT forecasts.

Lycopodium Ltd, Year End: 30 June

• Share Price: 5.20 A$/sh (5.21 on 1-Apr-2021)
• Price Target: 6.62 A$/sh
• Valuation (DCF): 6.62 A$/sh
• WACC: 9.0%
• Terminal Growth: 3.0%
• Shares on issue: 40 m, diluted
• Market Capitalisation: 206.6 A$m
• Enterprise Value: 137.6 A$m
• Cash: 84.5 A$m
• Debt: 15.5 A$m

Click on the link at the top for the full report, or open the attached file below.

Disclosure: I hold LYL shares.

24-Feb-2021:  1HFY2021 Half Year Results Announcement   plus   Interim Financial Report 31 December 2020

and:  1HFY2021 Investor Presentation

Lycopodium Records Solid Start for FY2021

Lycopodium Limited (ASX: LYL) has delivered a solid result for the first half of 2021, with net profit margin remaining strong, at 8.8%.

For the six-months ended 31 December 2020 (“1H FY2021”), the Company generated revenue of $71.0 million and net profit after tax (NPAT) of $6.3 million.

The company Directors have approved a fully franked interim dividend of 10 cents per share, payable on 8 April 2021.

Lycopodium’s Managing Director, Peter De Leo, said: “The first half of this financial year has been very positive, with the successful completion of Perseus’ Yaouré Gold Project in Côte d’Ivoire in December, ahead of schedule and under budget despite the challenges presented by COVID-19, and the recent award of two substantial African resource projects.”

In December, the Company was awarded the contract to provide Engineering and Procurement (EP) services for Sandfire Resources’ Motheo Project (T3 Copper-Silver Project), located in Botswana’s Kalahari Copper Belt, one of the world’s most exciting and emerging copper producing regions. This followed the earlier completion of the Definitive Feasibility Study (DFS) and Front End Engineering and Design (FEED) for the project.

In early January, Orezone Gold Corporation awarded the Company the contract to provide Engineering, Procurement and Construction Management (EPCM) services for the delivery of its Stage 1 Oxide Process Plant for the Bomboré Gold Project in Burkina Faso. Again, this award comes on the back of earlier works completed on the project, including the initial study work and FEED, undertaken out of Lycopodium’s Toronto office.

“Our ability to convert initial study and engineering works into project delivery is testament to the strong client relationships we have established and our clients’ confidence in us,” said Mr De Leo.

Having successfully completed its largest EP(C) contract to-date in 2020, being the Yaouré project, the Company has maintained its strong safety performance, with a Lost Time Injury Frequency Rate (LTIFR) of zero for the rolling 12 month period to January 2021, against 2.5 million manhours controlled.

“Delivering projects safely for our clients remains a fundamental metric of success and our excellent safety performance is a credit to our delivery teams on the ground,” said Mr De Leo.

While COVID-19 continues to influence economic confidence globally, impacting project commencements, the forward outlook is considered positive, with a strong pipeline of opportunities identified. Based on the anticipated timing of new projects commencing, the Company provides guidance for the full year of approximately $160 million in revenue and NPAT in the order of $12 million.

“Our focus will continue to be on working in partnership with our clients to enable them to progress their projects to completion, on time and budget,” Mr De Leo said.

--- end ---

[I hold LYL shares.  71% of their H1 revenue came from Africa, and particularly West Africa, and 24% from Australia.  In the pcp (prior corresponding period, being the 6 months to 31-Dec-2019) it was 79% from Africa and 16% from Australia.  They do the same stuff that GR Engineering Service (GNG) do, except usually on a larger scale and for larger companies, and mostly overseas.  Both GNG and LYL are WA companies based out of Perth and both specialise in designing and building gold processing plants, after doing the studies (PFSs, DFSs and BFSs, being Pre-Feasibility, Definitive Feasibility and Bankable Feasibility Studies).  Both also work for other industries, meaning other miners and in other industries outside of the resources industry, but with both LYL and GNG it is working for gold miners that provide their main source of revenue.  I like them both for a pick-and-shovel-play on gold.  When they are flying, as GNG are starting to again now, their dividends can also be quite good, market-beating in fact, i.e. above average, although revenue and therefore dividends can be quite lumpy at various times.]

30-Nov-2020:  Euroz Hartleys Securities: Lycopodium (LYL): Initiation of Coverage - Commercialising Science

Analyst: Harry Stevenson, Recommendation: Buy.

• Share Price: 4.87 A$/sh
• Price Target: 5.61 A$/sh
• Valuation (DCF): 6.00 A$/sh
• WACC: 9.2%
• Terminal Growth: 2.5%
• Shares on issue: 40 m, diluted
• Market Capitalisation: 193.5 A$m
• Enterprise Value: 94.3 A$m
• Cash: 102.9 A$m
• Debt: 0.5 A$m

Commercialising Science

Investment case

Lycopodium Limited (LYL) provides integrated engineering, construction and asset management solutions to global resource markets. Established in 1992 and listed on the ASX in 2004 the company has a 28-year track record of delivering EPCM/EPC contracting and engineering services to a diverse range of industries.

The company employs around 600 staff specialising in providing lifecycle services from concept and feasibility through to construction and plant optimisation. Recently the company has developed a reputation for providing services to the growing West African gold sector.

FY’20 Results

LYL provided a solid set of FY’20 results generating revenue of $211.1m and NPAT of $11.8m; in line with guidance of $200m and NPAT of $11.5m. Supported by staff the company was relatively unaffected by Covid-19 and all projects were completed on schedule. LYL benefited from favourable payment terms on the Yaouré Gold project for Perseus, generating operating cashflows of $62m for the year. LYL continued its strong track record of dividend payments, maintaining a fully franked 20CPS full year dividend or 68% of earnings.

Outlook

While FY’20 results were generally strong, the orderbook does not support the same level of activity, with two major projects now complete we look for a decrease in the level of EPC activity and consequently forecast revenue falls through FY’21; however, we forecast stronger margins as backend project profits are recognised. We expect activity in Mondium to continue to ramp through FY’21 picking up some of the slack in the LYL’s orderbook. With a number of major studies in the pipeline we expect EPC contract awards to occur in the back end of FY’21, positioning the company for a stronger FY’22.

Valuation

LYL continues to lag the wider resources led recovery and its industrial peers. Trading at $4.87 LYL continues to trade at a discount to preCovid high of $6.40. We expect LYL to retrace some of this lost ground as existing studies and EP contracts convert into new contracts through the second half of FY’21.

We initiate coverage with a 12-month price target of $5.61 based on a fairly basic, although somewhat undemanding, capitalisation of forecast 2021 and 2022 earnings. LYL has traded back given the general market conditions and a weaker orderbook outlook, we look to contract wins in the second half of FY’21 from a large pipeline of opportunities to re-rate the stock. In the meantime, LYL trades 6x EV/EBIT with $100m in the bank.

Other Matters

LYL’s capital light business model is cash generative; converting ~100% of EBITDA to free cashflows and over time enabling the business to pay ~60% of earnings as dividends, while continuing to fund internal growth. The stock remains firmly held by management and insiders, aligning management and shareholder interests; however, this does come at the expense of liquidity.

Summary

LYL has established a reputation for delivering projects on time and to client specification. While the current orderbook does not support the same level of activity through FY’21 the business is well positioned to capitalise on sustained gold values and ramp up on project activity as Covid-19 vaccines roll out through 2021. Guided by experienced management with track record of managing tendering risks, we expect LYL to continue to trade up from current levels as LYL converts a number of studies to EPC contracts. We initiate coverage with a Buy Recommendation and a 12 month $5.61/sh price target.

--- click on the link at the top for the full initiating coverage report on LYL by EH (Euroz Hartleys) ---

[I hold LYL shares, and I bought more LYL earlier this week.]

26-August-2020:  FY2020 Full Year Results Announcement   and   FY2020 Investor Presentation   

plus  FY2020 Annual Financial Report   and   Preliminary Final Report / Appendix 4E

PERTH, 26 August 2020 – Lycopodium Limited (LYL) has generated revenue of $211.1 million and a net profit after tax (NPAT) of $11.8 million for the financial year ended 30 June 2020 (FY2020). NPAT was slightly higher than the updated guidance issued in May of $11.5 million, in response to the onset of the COVID-19 pandemic.

The company Directors have approved a fully franked final dividend of 5 cents per share, payable on 9 October 2020, bringing the full year dividend to 20 cents per share.

Despite the growing impact of COVID-19 as events unfolded during the first half of 2020, the progress of projects in delivery was generally unaffected, with measures implemented to manage the potential implications on operations. Consequently, the full year revenue achieved was only slightly lower than the mid-year guidance of $220 million.

Lycopodium’s Managing Director, Peter De Leo, said: “Faced with the significant challenges presented by the onset of the global coronavirus pandemic during the latter half of the financial year, our ability to continue to provide our clients with the high quality of service they have come to expect from Lycopodium is a testament to the resilience and adaptability of our people.”

During FY2020 the Company successfully completed two significant EPCM projects in Burkina Faso, being the Sanbrado Gold Mine for West African Resources and Teranga Gold Corporation’s Wahgnion Gold Mine, both of which were completed safely, ahead of schedule and within budget. Delivery of the Yaouré Gold Mine for Perseus Mining remained on schedule in Côte d’Ivoire, with completion of the design and procurement scope and commencement of construction work on site achieved as planned.

During the second half of FY2020, Mondium, Lycopodium’s incorporated joint venture with Monadelphous, commenced its EPC scope on Rio Tinto’s Western Turner Syncline Phase 2 iron ore project in the Pilbara region of Western Australia. Engineering and procurement services are well advanced and the team has mobilised to site, with delivery ongoing into FY2021. Mondium also completed the engineering and procurement services scope and is well advanced with earthworks and concrete works of its EPC contract for Talison Lithium’s Tailings Retreatment Project in Western Australia.

Throughout the year, the Company completed numerous Feasibility Studies across a spectrum of commodities including gold, copper, lead, zinc, silver, lithium, graphite, mineral sands and sulphate of potash. Successful completion of these studies has led to the award of further scope on a number of the projects which will support the project pipeline moving into FY2021. This includes the award of the front end engineering and design (FEED) scope for Australian Potash’s Lake Wells Sulphate of Potash Project in Western Australia, the FEED to support long lead procurement and early works site packages for Sandfire Resources’ Motheo Copper Project Processing Plant in Botswana, and the engineering and procurement (EP) contract for IAMGOLD Corporation’s Boto Gold Project in Senegal.

During the year, the Company’s Infrastructure business provided rail infrastructure management services, including 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. Utilising its infrastructure asset management expertise, it was also engaged by the Cape Preston Port Company, operators of the port stockyard and marine section of CITIC Pacific Mining’s magnetite mining operation, the largest magnetite operation in Australia, to optimise the maintenance for a number of critical assets at the port facilities located in the Pilbara region of Western Australia.

The Company’s Industrial Processes business continued to leverage its expertise in the provision of projects and engineering services in the areas of specialty chemicals, pharmaceutical and heat/mass transfer, providing services on Kawasaki Heavy Industries’ Hydrogen Energy Supply Chain (HESC) project, a worldfirst pilot project to safely and efficiently convert locally-produced, clean hydrogen for international transport. Focusing on emerging opportunities in renewable energy and sustainability related projects, it also provided independent expert advice on energy efficiency and clean energy generation opportunities for the Victorian Government’s Agriculture Energy Investment Plan (AEIP) and worked with ZECO Energy in the development of a new portable, photovoltaic (PV) solar-powered light tower design.

“There is no doubt the past few months have been extremely challenging, with the onset of the pandemic in early 2020 significantly impacting how we live and work. During this most difficult time, I sincerely thank our people for their continued focus, commitment and resilience in maintaining the level of professionalism and quality of service our clients know they can expect from us,” said Mr De Leo.

During FY2020 there were 2.5 million manhours worked across Lycopodium managed projects, with a zero Lost Time Injury Frequency Rate (LTIFR) achieved against a 7.5 Australian construction industry average (Safe Work Australia, Australian Workers’ Compensation Statistics, 2017-18; note, the industry statistic excludes LTIs less than one week, ADIs and MTIs).

“With projects delivered across the globe, in often challenging locations, the Company’s excellent safety performance is reflective of our focus on the health, safety and wellbeing of our personnel, and the commitment they each have in achieving such a high standard,” said Mr De Leo.

Outlook

With the uncertainty presented by COVID-19 and what is likely to be a highly constrained environment in FY2021, the Company’s forward strategy is to stay focused on its established relationships to secure ongoing works with key clients. This includes supporting clients to progress through the various stages of project development, from initial scoping studies through to project delivery.

In the Resources sector, the current global economic outlook is driving up the price of gold, with gold generally seen as a safe investment in times of economic uncertainty. There is also the opportunity in the domestic Australian market to support clients embarking on sustaining capital works projects, given the prospect of new developments potentially being delayed for some time.

The Company will continue to pursue its target markets in the Infrastructure sector, focusing on the provision of rail infrastructure management, non-process infrastructure and infrastructure related asset management. Again, much of this work is acquired on the basis of having established long-term partnerships with a core client base.

In the Industrial Processes sector, the Company will continue to provide its specialist expertise in emerging markets, such as cannabinoids, light metals and water purification, and support renewable energy and sustainability related projects as businesses seek to operate smarter and leaner in response to current economic pressures.

--- click on the links at the top for more ---

[I hold LYL shares.  Lycopodium is a larger and international version of GR Engineering Services - GNG.  Both specialise in designing and constructing (and optimising) gold processing plants, but both do other work as well.  GNG do their work mostly in Australia, whereas the majority of LYL's projects in recent years have been in Africa and other overseas countries.]

29-May-2020:  Updated Guidance - FY2020

Further to the guidance issued by Lycopodium Limited (LYL) on 25 March 2020, the Company now provides a revised guidance of Net Profit After Tax (NPAT) in the order of $11.5 million for the financial year ending 30 June, 2020.

This updated guidance is in response to the ongoing impact of the COVID-19 pandemic on the global economy, which is materially impacting the award and commencement of new work.

Lycopodium’s Managing Director, Peter De Leo, said: “Whilst the progress of our projects in delivery has generally been unaffected, as was anticipated, COVID-19 has significantly impacted new opportunities coming to market, with projects delayed or suspended.”

The measures implemented to contain the pandemic are likely to continue to constrain global economic activity for an extended period.

The Company’s response to the crisis is being managed by a dedicated internal taskforce, with actions aligned with the advice provided by the various governments and authorities within the locations in which it operates globally. 

“We are continuing to work with our people and clients to maintain business continuity and meet our current project obligations. As always, the health and wellbeing of our people, clients and partners, and the broader communities in which we operate, remains our priority during this unprecedented time.” 

Disclosure:  I hold LYL shares.

About Lycopodium (LYL):  "Lycopodium is a leader in its field, working with clients to provide integrated engineering, construction and asset management solutions.  We have the expertise to deliver complex, multidisciplinary projects, through to the provision of feasibility studies and advisory services. Operating across the Resources, Process Industries and Infrastructure sectors, we offer a diverse team of industry experts to deliver bespoke and innovative solutions across all commodity types.  With the capability to deliver projects around the world, we have offices in Australia, South Africa, Canada and the Philippines."

For more, visit www.lycopodium.com

29 May-2020:  I sent in three suggestions for "The Call" on Ausbiz yesterday afternoon, and they covered off all three today (while also making a few comments about the grouping of the 3).  Those stocks were NWH (NRW Holdings), MAH (Macmahon Holdings) and MND (Monadelphous Group).

https://www.ausbiz.com.au/media/the-call-friday-29th-may?videoId=1542

The two "experts" rated NWH as a buy, or best of breed (to paraphrase), but were not keen on MAH - and got a lot of things wrong about them - like suggesting they do a lot of work in South East Asia (yes they do) and South Africa (no they don't), and that their utilisation levels were low (wrong again).  MAH are flat-out (busy), and that's why Andrew Wielandt from Dornbusch Partners (who is clearly the smarter and more researched of the two of them) commented that MAH have provided a 39% per annum return over the past 5 years.  Adam referred to Macmahon as an engineering business too.  That's debatable.  MAH are a mining services company that predominantly does contract mining.  Engineering is not one of their strong points.  They have long life contracts (including many LOM - Life of Mine - contracts) and they are busier than they've ever been.  It's a pity that these so called experts don't do a little fact checking every now and then before prattling off vague memories of what they think the company does, as well as getting their companies mixed up.

They had mixed feelings about MND (Monadelphous).  Again, Adam Dawes from Shaw and Partners was providing misinformation about Mono's, saying that they had built and were operating mining accomodation villages in Australia and Mongolia and that MND are big in Mongolia.  He suggested that the lower utilisation of their mining camps was creating a headwind for them.  MND are NOT big in mining accomodation villages at all, in fact I don't think they own any accomodation villages.  Perhaps he was thinking of Fleetwood (FWD) or Decmil (DCG), because those comments certainly DO apply to both of those two companies.  Also, MND have a small office in Mongolia to support their contracts at RIO's massive Oyu Tolgoi copper/gold mine, but they're not "big" in Mongolia by any stretch. 

MND have two large contracts at BHP's huge new South Flank iron ore mine development in WA's Pilbara region, and the progress of that work is a more likely determining factor as to whether they have a good year or bad year both in FY20 and FY21.  MND have a very good working relationship with BHP and MND also have an excellent track record of rarely getting their costings or quoting wrong, so big cost blowouts are not something I would be particularly worried about with MND.  They always ensure that they have clauses in their contracts that ensure that they do not lose money because of things that are outside of their own control.  The client would likely wear the brunt of those additional costs.  That's just sensible contracting, which is what MND are all about. 

It was suggested by "The Call" "experts" that all of MND's contracts are Fixed Price or GMP (Guaranteed Maximum Price) contracts.  I would consider that highly unlikely with contracts worth over $100m each for a company like BHP.  However, knowing MND as I do, where they were willing to enter into FP or GMP contracts, they would build plenty of scope into those contracts to cover unexpected delays etc.  They would also have insurance over those contracts, as they are a very conservatively run company, and they are big enough to be able to afford to do things properly.  They are also very focussed on profitability (including ROE and ROCE) in each and every division of the company.

Adam also commented about NWH and MND having the better balance sheets, and that he was far more wary of MAH.  However, Andrew had already mentioned that MAH had $155m of cash (disclosed in their latest update to the market).  Inconsistent message there guys.  The reality is that NWH have low debt and MND and MAH have plenty of net cash (no net debt), and all three have VERY solid balance sheets.  MND are the most solid, but a lot of that is due to their very large size, and the size of their huge pile of net cash.  MND had a cash balance of $163.3 million on December 31, and no debt. 

MND do engineering and construction work mostly, whereas MAH do contract mining, so MAH have a lot more money tied up in mobile mining equipment (loaders, haul trucks, excavators, etc.), so MAH do carry more liabilities in relation to those assets (which are well covered by their LOM or long-life contracts).  However, MAH are still in a net cash position, so are arguably in better shape than NWH, who still have some net debt from a recent acquisition.  NWH's debt levels don't bother me at all however.  Debt almost sent NWH broke after the last mining boom, and they definitely learned their lesson and have demonstrated many times over recent years that they will always pay their debt down quickly after using it to fund smart strategic acquisitions.

I currently consider those three companies (MND, NWH & MAH) to be the best three mining services companies in our market - in terms of engineering and construction services - and contract mining services - and all three are still undervalued by the market, having not recovered too much yet from their March lows.   MAH has recovered the most, and arguably has less upside left from here.  MND & NWH have plenty more upside, and also have quite a bit of work outside of both the mining and the energy sectors - they both are very active in infrastructure construction and maintenance across a number of sectors, NWH more so in transport infrastructure (road and rail), and MND in many other sectors (they're a much bigger company).

Anyway, I digress...  LYL was the subject of this straw.  LYL specialise in designing and building (and optimising) gold processing plants.  MAH & NWH do a lot of work for gold mining companies also.  LYL was originally the engineering arm of MND, which was spun out many moons ago, and LYL and MND have since formed a JV called Mondium which has been gaining some momentum and picking up some bigger contracts iover the past couple of years.  Early this year, Mondium won a $400m construction contract from RIO, which was Mondium's biggest contract ever.  Lycopodium's 40% interest in Mondium (MND own the other 60%) is worth keeping in mind when looking at LYL.

I hold LYL, MND, NWH & MAH.

14-Apr-2020:  Hartleys: LYCOPODIUM LTD (LYL): Guidance withdrawn on potential for COVID-19 impact

Excerpts:

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.

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.

26-Feb-2020:  Hartleys:  Lycopodium (LYL):  Solid as usual, though delays continue to impact

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).

26-Feb-2020:  A solid set of FY2020 H1 (first half) results were released this morning by Lycopodium (LYL):

• Revenue up +51.1% to A$110.3m
• EBITDA up +21.5% to A$16.4m
• NPAT up +4.8% to A$8.9m
• EPS up +4.6% to 22.6 cps
• 15c interim (fully franked) dividend maintained

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.

2020 Half Year Results and Update

2020 Half Year Investor Presentation

2020 Half Year Accounts

Appendix 4D 2020 Half Year Report

Disclosure:  I hold LYL shares.

28-Aug-2019:

LYL 2019 Full Year Results

Preliminary Final Report

• Revenue : $154 million
• Profit Before Tax : $23.54 million
• Profit After Tax : $16.51 million
• Earnings per Share : 41.5 cents per share
• Total Dividend : 30 cents per share 

Outlook 

"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.

23-Feb-2019:  Lycopodium (LYL) released their H1FY19 report yesterday (22nd Feb) and their 2-page "Half Year Update" can be viewed here.  The full Half Year Accounts (31 pages) can be viewed here.

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-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. 

Click here for MND's announcement and here for LYL's announcement.

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.  

13-Jan-2020:  Hartleys:  Lycopodium (LYL):  Breaththrough $400m Win for Mondium

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.

Accounting Treatment

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.

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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.

Link to Mondium Contract Win announcement by LYL

Link to Mondium Contract Win announcement by MND

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.

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.