"A nice contract award for the burgeoning Lithium sector - looking forward to the business update later this week at the AGM!"
AGM tomorrow, actually.
But not sure what we will hear that we don't already know, namely that the business is in fine shape, its senior executives are competent and motivated, and that demand for the company's services remain robust.
What we probably won't hear - because it is not the style of LYL directors and management to say this sort of thing - is that the strong demand for LYL's services is likely to endure for a lot longer than previous cyclical upswings.
But based on the under-investment in minerals production capacity over the past decade, there is now clearly a scramble by the global mining industry to play catch-up, combined with the lack of spare high-quality engineering D&C capacity.
This portends a "stronger-for-a-lot-longer" cycle.
Of course, if that view is proven correct, the next logical step is to look at the way the stock is valued against that backdrop:
Because LYL's half-yearly earnings are lumpy (large engineering construction projects don't commence and end in a manner that conveniently match to 6- or 12-month financial reporting time frames), accurately forecasting short-term earnings for LYL is difficult.
So let's just assume that FY2022's result gets replicated in the current year, i.e., NPAT of ~$27m; which works out neatly to a P/E of 10.0x, given the $268m Market Cap.
Which is not at all demanding, on any objective measure, especially if the premise of "stronger-for-longer" is even half accurate.
But wait, there's more: LYL is a $270m company with no debt and $100m in cash, so if one adjusts the P/E multiple to account for the cash, you get an adjusted multiple of just 6.7x.
Of course, we know that the business always needs to have access to ample liquid funds for posting performance guarantees in order to win new work.
But $100m is a very big number in the context of a Revenue of around $220m and $230m, so let's be realistic and say that $60m of that $100m needs to be permanently locked up; the realistic adjusted P/E multiple becomes ($270m- $40m)/$27m = 8.5x
That might be an appropriate multiple if we could say for certain that the company is currently over-earning; but if "stronger-for-longer" turns out to be what transpires, then a share price starting with "8" is far more reasonable, and even possibly a "9" if "stronger-for-longer" comes to form part of the consensus mindset.
The stock might be trading at near record -highs, but that doesn't necessarily mean the investment opportunity has passed.
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