MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.
Today we hear from Perennial Value Management head of smaller companies and microcaps Andrew Smith.
What’s hot right now?
Smith says the team at Perennial like stocks that provide solutions aimed at helping companies meet ESG obligations.
In many areas, companies are only starting their ESG journey so significant spend is required to get them to the standard required.
“Most of the investments we have found on the ASX are focused on the environmental solutions,” he says.
“From our perspective, this will be one of the few sectors seeing strong revenue growth and corporate interest in this tougher economic environment given the money raised in private equity impact funds is looking for targets.”
In terms of trends, Smith adds Perennial are seeing strong revenue growth and a little push back on pricing across the ESG space, “which is positive given the inflationary pressures all companies are facing”.
“New innovations are being adopted rapidly as well, reducing the sales cycle vs what we observe in non-ESG related product sales,” he adds.
Companies are viewing this as a required spending area rather than a discretionary one, he explains, hence why revenue growth remains robust.
“These companies are also being forced to deliver better outcomes in ESG for investors and we are seeing those that are doing a good job are being re-rated.”
Top picks
Smith’s top three picks include Envirosuite (ASX:EVS), Synertec Coporation (ASX:SOP), and RPM Global (ASX:RUL).
From his point of view, they each offer unique IP in a sector seeing strong revenue growth and corporate appeal.
“Combine that with attractive valuations and it means they are worth investors revisiting them,” he says.
ENVIROSUITE (ASX:EVS)
The ~$208.6m market cap company provides monitoring and design tools for environmental intelligence with a strong presence in water, mining, and aviation.
At the beginning of June, the Aussie-listed tech firm revealed that its EVS Water division had ‘gone global’, cracking open a near $3bn market in less than 12 months.
Smith says EVS growth trends are strong with sales up 27.7% in the fourth quarter.
SYNERTEC CORPORATION (ASX:SOP)
SOP is a diversified technology design company focused on enabling a low carbon future.
“The company recently progressed their solar solution replacing diesel for Santos at the well head and this project is now a commercial agreement after successful factory trial results saw the project now moving to the field,” Smith says.
“The addressable market is very large for this solution both in Australia but also in the US.”
SOP’s FY22 H1 results demonstrated the strength of Synertec’s Engineering business to generate cash flows, innovation and expertise to support emerging ESG technologies that are gaining traction with clients and real momentum towards commercialisation.
Total Revenue for the half was $5.8 million, up 65% on the prior comparable period (pcp) and revenue from high-margin engineering consultancy services increased by 93% to $4.3 million.
RPM GLOBAL (ASX:RUL)
RUL recently bought an ESG consultancy practice for the mining sector and is looking to further integrate ESG outcomes into their mine scheduling and optimisation software.
“Sales are strong both here but also in their existing software as highlighted by recent sales updates,” Smith explains.
“The company is also financially strong with a buyback announced recently.”
RUL also featured as one of the picks in a previous MoneyTalks where we interviewed senior analysts Gaston Amoros and Alex Shevelev at Forager Funds Management.
According to this duo, despite RUL adding more than $9m of sticky recurring revenue this financial year and increasing profits by 255% (from a low level last year), RPM’s share price is down 26% – meaning the stock presents a great ‘buy’ opportunity.
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.