Small cap gems set to blow the lights out in 2025 (part two)

With the small caps sector emerging from its slumber, it’s time to pull out the sheep entrails and take a wild stab at who will outperform in 2025.

Here are more of next year’s small-cap winners to bet your house – or your engorged Bitcoin portfolio – on.

(Read part one, covering the first batch in this collection of potential 2025 small-cap gems, here.)

Hit the wide, open road (fees apply)

Think of toll roads and Transurban Group (ASX:TCL) comes to mind. Fair enough, too, given the company’s government-backed, quasi-monopoly of premium arterial bitumen in Melbourne and Sydney.

Transurban is not especially attractively priced on fundamentals, but one day an overseas investor with a 30-to-50-year vision – such as a super fund – will take it over.

You read it here first.

In the meantime, Atlas Arteria (ASX:ALX) operates toll roads in Europe and Trumpland.

The company’s recent September quarter update was a tad subdued, with North American weakness offsetting European strength.

There’s also some concern about the duration of some concessions and the potential for new taxes. But when a road’s built, motorists will come and investors should be placated by the 8% dividend yield and – in the view of RBC Capital Markets – limited downside.

Office proper-tunities

The real estate investment trust (REIT) sector has proved to be resilient against rising interest rates, but office assets continue to trade at steep discounts.

“However, we believe that it is simply a question of when not if this grouping will also experience a strong rerating,” says Katana portfolio manager Romano Sala Tenna.

“Our analysis indicates that office building fire sales and devaluations have largely run their course.”

With this in mind, Centuria Office REIT (ASX:COF) is trading at a whopping 40% discount to net tangible assets and an 8%-plus yield.

While the shares are yet to re-rate they are “mapping out a strong accumulation pattern”.

Cromwell Property Group (CMW) is also worth a look in this space, given the tightening working from home rules and he dearth of new supply coming on stream.

Mining’s handmaidens

Turning to mining services – the handmaidens to the resources sector – RPM Global (ASX:RUL) boasts clients such as BHP, Rio Tinto, Mineral Resources, Newmont, and Anglo American.

A one-stop-shop for diggers and drillers, RPM Global provides mining software covering the entire mining lifecycle, from design and planning to equipment management, environamental compliance and financial optimisation.

The company has moved from upfront software licenses to a more attractive recurring subscription-based revenue model.

CEO Richard Matthews describes RPM Global as “built to sell,” so acquirers should get the hint. Possible takers are Orica (ASX:ORI) – which wants to expand from bang-sticks to digital services – or Imdex (ASX:IMD).

Katana’s Romano Sala Tenna says Austin Engineering (ASX:ANG) has reinvented itself to become the world’s biggest manufacturer of custom fit mining truck trays.

With factories locally and in Chile, North America and Indonesia – judiciously close to mining hubs – The King of the Tonka Toys is also branching out into built for purpose mining buckets.

Three of the four centres have outlined order growth of 50-100%, an “extraordinary level of expansion.”

Did someone say tech?

Investors Mutual Portfolio Manager Lucas Goode says ReadyTech (ASX:RDY) and Hansen Technologies (ASX:HSN) are two high-quality software businesses that largely missed out on the big tech rally of 2024.

Readytech provides people management software to the education and local government sectors – similar to more extravagantly priced peer (and market darling) Technology One (ASX:TNE).

Goode says: “We believe the founder-led business – which we have owned since IPO- is at an inflection point entering 2025, as the company’s investment in enterprise sales over the past three years drives acceleration in top-line growth and expanding free cash flow margins.”

Hansen sells billing and customer care software globally to the complex energy and communications sectors.

While short-term margins have declined with the acquisition of initially loss-making German business Powercloud, Goode says the purchase is positive because it exposes the company to the huge and transforming German energy utility market.

He expects Hansen to show accelerating organic growth and expanding margins in the next two years, aided by Powercloud’s sooner-than-expected return to profitability.

Additive manufacturing is a Shaw thing

Several stocks work in metal additive manufacturing (such as 3D printing), which is relevant for several heavy-duty industries.

Shaw Stockbroking likes Amaero International (ASX:3DA) which specialises in producing high-value alloy, and titanium powders for the defence, space, and aviation industries.

In the same space, AML3D’s (ASX:AL3) proprietary tech gives it a competitive edge, particularly in demanding sectors like defence and aerospace.

An ASX hero after listing in 2017, Titomic (ASX:TTT) did an Icarus and flew too close to the sun share-price wise, but remains a leader in additive manufacturing with its patented tech.

Shaw also likes Southern Cross Electrical (SXE) which provides electrical, instrumentation, communications, and maintenance services to the corporate sector.

A key appeal is that the company is exposed to the electrification and decarbonisation of the economy which – news flash – is still happening.

Bazza knows best

For our resources content we defer to the superior wisdom of Barry FitzGerald, who notes that at current bullion levels gold producers are still minting money.

This is despite gold’s record run petering out on renewed US interest rate fears as The Donald readies his big tariff stick.

With the producers and developers already having run hard, turn to the explorers for some fun.

Great Southern Mining (ASX:GSN) is on a market cap $15 million, having raised $2.5 million to advance its Duketon gold project in WA.

The company also has a free ride in an exploration joint venture with South Africa’s Gold Fields in north Queensland – and the US$13 billion market cap Gold Fields ain’t just in it for Sovereign Hill-style flecks of gold.

These ones take the (yellow) cake

Let’s talk about uranium; everyone else is.

In short, Russia has a lot of the stuff and increasingly looks less willing to share it with its western foes.

Once again, the sector has had a decent run, but at the junior end the $150 million Alligator Energy (ASX:AGE) is building its case for the Samphire project in uranium-friendly South Australia.

Further afield, Elevate Uranium (ASX:EL8) has a circa $104 market cap and is doing the same in Namibia.

Copper look at these

Ask the big end of town what commodity is set to outperform in coming years and the response is copper, copper and copper.

And did we mention copper?

Trading on a circa $60 million market cap, New World Resources (ASX:NWC) expects to receive final development permits in Trump’s ‘drill baby drill’ America, for its low-cost, high-margin Antler project in Arizona in the first of 2025.

And don’t can tin, either. Many investors have had a tin ear to the useful industrial metal, but in early 2024 supply disruptions put a rocket under the price.

The $40 million market cap Stellar Resources (ASX:SRZ) is looking to advance its Heemskirk project in Tassie – and the first serious exploration there in eons could spice things up.

Right royal(ty) opportunities

Royalty streams are popular with many investors because revenue is more aligned to turnover than profitability, but they are more appreciated overseas.

A rare ASX exposure, Deterra Royalties (ASX:DRR) derives most of its value from a circa 1.2% royalty over BHP’s Mining Area C iron ore deposit in the Pilbara. This tier-1 asset produces about 125 million tonnes of iron ore annually at low cost, supported by excellent infrastructure.

Deterra is on the royalty hunt and is targeting acquisitions in the $100-300 million range.

Alternatively, the BetaShares Global Royalties ETF (ASX:ROYL) is weighted to gold and oil and gas, but also covers pharmaceutical and music royalties.

It second biggest investment is in Universal Music, which holds the rights to 600 Bob Dylan songs. The times might be a-changing, but royalty streams from such assets never go out of fashion.