This was well overdue, but am glad we were able finally to set up a meeting with Peter.

Lycopodium has been on my radar ever since the Teaminvest days but for whatever reason i never pulled the trigger. Probably for no other reason than i saw it drop from ~$6 to ~$1.50 when the mining boom rolled over in 2012 and was too silly to differentiate between a cyclical slowdown and a structural decline.

But while things can be lumpy in this space, it's clear that this is a business that is very selective about the work it takes on, has a focus on earnings over revenue and puts a lot of focus on reputation and brand. And, as Peter said, as the business has grown and diversified that lumpiness is less of a factor. (not that that is necessarily a bad thing in and of itself, as I mention in the chat).

Also great to see the level of inside ownership, an avoidance of hype and promotion, and the fact there seems to be a good number of tailwinds behind the business.

Anyway, you can check out the interview for yourself and scrutinise the transcript here:

Lycopodium Transcript.pdf

[not held, but considering it]

Some key notes from the chat (as generated by AI):

Business Model & Strategic Positioning

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• Engineering vs. Contracting: De Leo emphasized that Lycopodium is an engineering and project delivery services provider, not a construction contractor. This distinction is critical for their risk profile, as they generally do not own heavy assets like fleets or drilling rigs.
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• Capital-Light Approach: The business maintains a "match fit" balance sheet with virtually no debt and $80 million in cash. Most of their capital is tied up in working capital (~$50–$55 million) to support global operations rather than fixed assets.
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• Revenue Moat: Approximately two-thirds of revenue is generated from repeat clients, a testament to the company’s brand and reputation.

Financial Performance & Guidance

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• Margin Targets: The company openly targets a 10% NPAT margin. De Leo expressed a lack of interest in "exhausting" high-revenue models that only deliver single-digit returns.
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• Dividend Policy: Historically, the company has distributed two-thirds of earnings to shareholders. However, the current target for upcoming distributions is 50% to continue strengthening the balance sheet for long-term growth.
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• Project Pipeline: The "North Star" for future performance is the volume of feasibility studies underway. De Leo noted that their study pipeline is currently "about full," which typically precedes delivery work.

Global Operations & Risk Management

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• Geographic Hubs: Lycopodium operates through three main hubs: APAC, Africa, and the Americas.
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• Africa: While acknowledging sovereign and geopolitical risks, De Leo noted that much of the revenue is earned via engineering done "virtually" in Australia or Canada, and ownership of materials often transfers at the port of departure.
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• Americas: The recent majority acquisition of Saxum (July 2025) provides a beachhead in Latin America, particularly in the cement and minerals industries.
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• Ts & Cs Discipline: The company is willing to walk away from major projects—including two recent large bids in Pakistan and Zambia for Barrick—if the contractual terms or risk regimes are deemed too punitive.

People & Innovation

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• Culture: The company refers to long-term employees who stay and grow with the business as "Lycopods". Retention is supported by their Graduate Development Program, which brings in over 30 graduates annually.
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• Offshore Centers: To remain competitive against global peers, Lycopodium utilizes value engineering centers in Manila (230 staff) and Lima (60 staff) to handle internal drafting and modeling.
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• Technology & AI: While using tools like Orway IQ for data-driven plant optimization, De Leo described the company as a "fast follower" rather than a leader in AI to avoid "torching" capital on unproven tech.

The Five-Year Outlook (2031)

De Leo envisions a company where the Americas hub has reached parity with Africa and APAC in terms of business volume. Success would include fully unlocking the value of the Saxum acquisition and maintaining their "Qantas-like" safety and delivery track record in the engineering world.

As an engineering services company, the ever present challenge is to continually win more work. Work to replace completed projects, and more work to underpin growth.

However, the demand from clients is rather cyclical, and can dry up extrenely quickly (just look at what happened to the mining services companies when commodity prices collapsed a few years ago). Even existing projects can end sooner than expected, or can easily be renegotiated when clients are having cash flow challenges.

When work does dry up, the business is left with lots of idle and expensive consultants that they need to pay, so there can be pretty significant operating leverage -- which means seemingly modest revenue declines can translate into substantial drops in profit.

Of course, that works in both directions. The workforce can take on a lot of new projects before additional resources are required.

So the ideal time to buy a company like this is when you are (a) confident of lots of work coming in, and (b) shares are trading at an attractive multiple of expected earnings.

You also need to be confident that the business' key assets -- its people -- are likely to stick around, and not leave and take valuable clients with them.

So, i'm not against this business, but i'd be cautious not to value them on 'peak earnings' and would want to have a good degree of confidence that workloads will remain decent for a good period of time.