Ann: Award of Bombore EPCM Contract, page-6

I don't follow the African gold scene at all (I operate on the limited basis being that I know there is an African gold scene and on the assumption that LYL will continue to play its role in it, in a manner that is in the best interests of LYL shareholders), so thanks for those specific insights into that other major project, and the change of ownership around it.

Frankly, given the unknown nature of the new owner of that project you reference and the reputation - rightly or wrongly - that Chinese companies operating in Africa have for being....uh... let's call it "commercially aggressive", I am quite ambivalent about whether or not LYL wins any work at all related to this particular work.

Engineering contracting is a truly tough business, as it is, and it does not need to be made even tougher by willfully taking on of elevated counter-party risk.

My sense is that LYL is going to have a busy few years ahead of it anyway, and is certainly not scratching around for work, so it can afford to continue to be discerning about with which clients it engages.

The work currently being won by LYL points to the company's assets approaching the point of being fully utilised again.  As such, I suspect that at some point over the next 12 to 24 months, the company's operating earnings will approach the previous cycle highs of around $30m pa:



On prospective EBIT of $25m - so even some way short of previous cyclical peaks, as can be seen in the chart above  - that implies an EV/EBIT multiple of just 5.5x [*].  (It is actually just 4x based on LYL's $100m EV using  last-reported balance sheet ($200m Mkt Cap and $102m Net Cash @ 30 June 2020), but that cash balance has been bloated by pre-payments, so I've assumed a lot lower "attributable" net cash balance of around $60m, in line with LYL's through-the-cycle historical average.

On that basis, it would come as no surprise to me if over the next year or two LYL's share price does not match its previous high (set in 2012) of a little over $7.00/share


[*] For added context, $25m of EBIT would translate to in NPAT of ~$18m, which corresponds to a P/E multiple of 10.5x (or around 7.5x to 8.0x on a cash-adjusted basis).

.