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!!
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.
With a strong pipeline of studies and projects in delivery, the Company remains on track to achieve the previously advised full year guidance of approximately $345 million in revenue and NPAT in the range of $46 to $50 million. The total value of capital projects currently in delivery is in the order of A$4 billion.
Bell Potter Unearthed Conference Presentation
Assuming mid-range NPAT of $48 million ($1.21 per share) Lycopodium is trading at 9 x FY24 earnings. I think Lycopodium’s guidance is very conservative and I expect guidance might be upgraded toward the top end in the next month or two.
What I really like about this business is the ROE has been increasing for several years and now sits on c. 40%. it has achieved this with zero debt and increasing cash reserves. The balance sheet is impeccable! While it is paying out a massive dividend of c. 7% fully franked, it continues to reinvest 30% of its earnings back into growth at a 40% internal rate of return. You get all this for a low PE of just 9 times NPAT. It’s a bargain in my eyes, even at an historically lofty share price of $11.00.
Source: Commsec Website
It’s important to remember that Lycopodium is a cyclical stock, and it will follow the fortunes of the resource industries, particularly gold. I think the outlook for the business should remain strong while the gold price is near record highs.
Held IRL (4.8%) and adding
Lycopodium released its FY23 AGM Presentation this morning. Sandwiched in the middle of the presentation was a slide titled “Current Snapshot” which contained FY24 Guidance:
How does this compare to FY23?
Management expect FY24 Revenue to be $345 million which would be up 6.5% on FY23 revenue of $324 million.
Management expect FY24 NPAT to be flat to 7% higher than FY23 NPAT of $46.8 million
Importantly, FY24 ROE should remain between 40% and 44% which is exceptional, particularly when you consider LYL has a lazy $82.4 million of the $113 million in total shareholder equity sitting in cash.
LYL is obviously building some sort of ‘moat’ around their expertise to be increasing ROE every year to this level without the need for leverage and with so much lazy cash sitting almost idle on the balance sheet. Since 2020 LYL has definitely landed in a sweet spot, and this looks set to continue into the near future.
I also like that LYL management are very forward thinking and try to seperate themselves by focusing on a unique suite of specialised engineering and professional services rather than trying to compete in the mainstream. The slide below is an example of how management is always thinking forward to stay ahead of the pack.
As @Bear77 has already mentioned LYL is also diversifying away from their heavy reliance on expertise to the Western African gold mimers, which @Bear77 pointed out is an area where they are also specialists in the field of electrical engineering.
This slide demonstrates LYL have several irons in the fire, and are are carving out a unique niche in each. I’m liking this business more each year, and have continued to add more shares to our portfolio.
Better leave something for @Bear77 to talk about!
Disc: Held IRL (2.6%)
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.
Disclosure: Yep, I sure do hold LYL shares.