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.

Lycopodium BUY Recommendation March 2021

Target Price: $6.62/share

Investment Thesis

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

• 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 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.

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.]

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).