##{"id":58954,"date":"2011-10-06T13:57:50","date_gmt":"2011-10-06T02:57:50","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/10\/06\/lycopodium-winning-fans\/"},"modified":"2011-10-06T13:57:50","modified_gmt":"2011-10-06T02:57:50","slug":"lycopodium-winning-fans","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/10\/06\/lycopodium-winning-fans\/","title":{"rendered":"Lycopodium Winning Fans"},"content":{"rendered":"

\n\t– Strong management highlight for Lycopodium<\/span>
\n\t– Earnings growth and dividends also attractive
\n\t– DJ Carmichael initiates with a Buy rating<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tLycopodium<\/span> ((LYL<\/span>)) was established in 1992 as a consulting engineering company and has since developed to focus on the delivery of EPCM<\/span> (Engineering, Procurement and Construction Management) consulting services to what is now a global client base. <\/p>\n

\n\tIn the view of stockbroker DJ Carmichael, this growth has been aided by one of the better management teams in Australia. The capability of management has allowed Lycopodium<\/span> to successfully diversify earnings across clients, project type, geography, industry and commodity.<\/p>\n

\n\tGrowth has not come at the expense of financial health, DJ Carmichael noting Lycopodium<\/span> has a strong balance sheet with net cash of around $24 million. Returns on assets have also been consistently strong for a number of years, while earnings per share growth since FY05<\/span> has averaged 17% per annum.<\/p>\n

\n\tWith Lycopodium<\/span> generating solid cash flow there has been scope for dividend increases and DJ Carmichael sees the yield as attractive at a forecast of 6.3% in FY12<\/span> and 7.0% in FY13<\/span>. Dividends are currently fully franked.<\/p>\n

\n\tThis estimate is based on DJ Carmichael's earnings per share (EPS) forecasts of 48.6c<\/span> in FY12<\/span> and 53.8c<\/span> in FY13<\/span>. This compares to EPS forecasts of Macquarie, the only broker in the FNArena<\/span> database to cover Lycopodium<\/span>, of 50.6c<\/span> and 54.7c<\/span> respectively.<\/p>\n

\n\tThere appears limited downside risk to the earnings estimates of DJ Carmichael as Lycopodium<\/span> has not only offered guidance for both years but has a material percentage of revenue for both FY12<\/span> and FY13<\/span> already locked in. <\/p>\n

\n\tThis offers another advantage according to DJ Carmichael in that it will allow management to be more selective in regards to the new projects taken on over the next 12-18 months. <\/p>\n

\n\tEarnings risk is more to the upside as DJ Carmichael expects a combination of consistent organic growth, expansion into new regions and industries and further acquisitions. Any such acquisitions are expected to be bolt-on type deals that allow Lycopodium<\/span> to expand its product offering into new areas.<\/p>\n

\n\tWhat may constrain growth going forward is the ongoing objective of management to execute projects and studies to a consistently high standard. As DJ Carmichael notes, this approach required good quality staff and in the current market acquiring such staff is a more difficult proposition.<\/p>\n

\n\tGiven the positive outlook for Lycopodium<\/span>, DJ Carmichael has initiated coverage on the stock with a Buy rating. Price target has been set at $6.20. Macquarie similarly has an Outperform rating on the stock with a comparable price target of $6.36. Macquarie's target was increased in August to reflect increases to earnings forecasts following a better than expected full year profit result.<\/p>\n

\n\tShares in Lycopodium<\/span> today are unchanged as at 1.20pm<\/span> with a last sale at $5.65. This compares to a trading range over the past year of $3.91 to $7.42. The current share price implies upside of around 12% to the price targets of Macquarie and DJ Carmichael. <\/p>\n

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\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"