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