MoneyTalks: Red Leaf’s CEO reckons these uberisation, decarbonisation and virtualisation stocks are keepers
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MoneyTalks is Stockhead’s regular recap of the ASX stocks, sectors and trends that fund managers and analysts are looking at right now.
Today, Red Leaf Securities CEO John Athanasiou talks about his favourite sectors and stock picks for 2021.
Athanasiou said Red Leaf likes looking at the micro to small cap sectors because they’re the most under-researched – and where the firm thinks it may generate the greatest value for its clients.
“We’re looking at three sectors, which we like to call the uberisation, the decarbonisation and the virtualisation of the economy,” he said.
“When we look at companies in these sectors the things we’re looking for is firstly, pathway to profitability. We like to see management having skin in the game, and we also like to see that there’s a global trend towards those sectors.
“And in those three particular sectors, we do see that.”
In terms of skin in the game, Athanasiou said they prefer the board to have at least 10% ownership of the company.
He also said that investors looking into the micro and small cap space should research the management team to ensure they don’t have a chequered past.
“Look at how much cash they’ve got at the bank, because these companies, just by their very nature, will always need funds eventually,” he said.
“And see if there’s a legitimate pathway to revenue, or if they’re already making money.”
Athanasiou’s pick in the uberisation sector is Mad Paws (ASX:MPA), which he said would have a big upside when lockdown restrictions end.
“Basically, Mad Paws is Airtasker for pets and on top of that they also generate revenue, delivering pet food, and pet insurance – so they’re not tied down to one revenue stream.
“Right now, in Sydney and Melbourne I imagine everyone’s walking their dog, so you don’t really need to pay someone to walk your dog, but once everyone’s opened up again, they will need that.
“And Mad Paws is in a fortunate situation where they’re able to diversify their revenue because they recently bought a business that also delivers pet food, so they are still delivering during lockdowns.”
And this is reflected in Mad Paws’ FY21 results, with revenue growing 43% since FY20.
This is due to increased subscriptions to now $2.4 million in annual recurring revenue (ARR) and more than 110,000 paying pet customers and 25,000 pet sitters on the platform.
The company also acquired Waggly – a pet toys and treats business – in June, which added $0.1 million in revenue for FY21.
In the decarbonisation sector, Athanasiou likes Kalina Power (ASX:KPO), which has been working on its waste-to-heat clean technology for decades.
“We’re definitely seeing a trend towards, and movement away from the so-called dirty energy like coal and into green technologies, such as Kalina Power,” he said.
“And we feel that Kalina is still kind of undiscovered, that’s why we think it has the best upside.”
Kalina is progressing the commercialisation of its technology, and sees opportunities in Canada, with the Government’s carbon tax legislated to increase from its current level of $50/tonne to $170/tonne – which it says will mean energy efficient technologies like its KALiNA Cycle will be more rapidly adopted.
Plus, there’s funding for technology commercialisation available through various Canadian and Alberta government agencies to accelerate Kalina’s plans to design standardise modules of the KALiNA Cycle for a range of industrial applications.
And his final pick in the virtualisation sector is real-time software player Vection Technologies (ASX:VR1) which combines 3D, virtual reality, augmented reality, industrial IoT, AI, ICT and CAD solutions.
“In virtualisation – there’s literally only one – and that’s Vection,” Athanasiou said.
“And like Mad Paws, they’re already generating revenue.”
The company had an impressive triple digit total revenue growth of 371% in the second half of FY21 – with around $4 million in total contract revenue (TCV).
And that $4 million came from a range of sectors, with 32% from architecture engineering and construction (AEC) and real estate, 19% from the public sector and education, 15% from defence, military, and law enforcement, 14% from sports and betting, 9% from media and communication, and 5% from healthcare and pharma.