MoneyTalks: Why Red Leaf Securities is bullish on ASX tech and its three stocks to watch

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 Red Leaf Securities CEO John Athanasiou.

What’s hot right now?

While technology outperformed during the pandemic pressures of 2020–21, higher inflation, interest rate hikes and uncertain economic conditions led to considerable declines in 2022.

But so far this year the tech sector is on a strong recovery and outpacing the ASX 200 benchmark by a factor of 3 to 1, second only to gold stocks in terms of performance since the start of 2023.

“Tech had an awful 2022 and we anticipate that inflationary pressures will decrease which in turn means putting less pressure on central banks to increase the cash rate,” Athanasiou said.

“Essentially when the cost of finance decreases it means the costs of holding assets which don’t pay a dividend – like many tech companies – decreases.”

Athanasiou said as the market anticipates the cash rate to hold or potentially decrease as inflation gets under control, the costs of holding assets like tech also becomes cheaper, which is why the sector has rallied again in 2023 so far.

“With the tech sector the outperformance has come to the larger end of the market and hasn’t flowed through to the smaller end and that is probably a function of investors still being concerned they’ll be caught out with capital raising and don’t want to have their holdings diluted,” he said.

“Given how tough the smaller end of the market has been they’re also very fearful of capital raises being done at a severe discount.”

However, Athanasiou said given how well the higher end of the ASX tech sector has performed YTD he anticipates money to start flowing to the smaller end and it too will start outperforming going forward.

Top picks

Kalina Power (ASX:KPO)

With a market cap of just $18 million, carbon capture clean tech KPO is a top pick for Athanasiou. He said the company is focused on the North American market, which has more than $1 billion worth of projects in the pipeline.

Kalina Power last week announced it had engaged corporate advisor Price Waterhouse Coopers (PwC) as the strategic advisor to its wholly owned Alberta based subsidiary, Kalina Distributed Power (KDP).

PwC has been engaged to fund KDP’s project development business plan and establish the mechanisms in which to raise debt and equity for its growing portfolio of projects.

PwC was ranked Global number 1 M&A advisor by volume for 2022 by Thomson Reuters and Bloomberg, having advised on more than 700 deals globally.

Athanasiou said PwC will only be paid a success fee and it would be unlikely they would participate if they didn’t think they’d be successful as they’re not being paid a retainer.

“Given the market cap is only $18 million and PwC have been told go to find $25 million of investment we see plenty of upside with Kalina,” he said.

“On top of that we’re hoping they’ll soon start generating revenue from their project development side of the business.”

Bluebet Holdings (ASX:BBT)

BBT offers sports and racing betting via its online wagering platform and mobile applications. It was founded by veteran bookmaker Michael Sullivan in 2015 and listed on the ASX in July 2021.

Athanasiou said their Aussie side of the business recently became cashflow positive while their US operations are growing and they’re operating in Colarado and Ohio.

“They have a market cap of $56 million and $27 million in cash,” he said.

BBT is looking to grow into other US states fairly soon, including Louisiana and Indiana.

He said they like their American operations where they partner up with existing organisations which have gaming licences like casinos, saving them more time and costs in getting their own licence.

“On top of that they target states which are less competitive so we think they’ll be very successful in growing in America without burning too much cash in doing so,” he said.

“We see plenty of upside and like them a lot.”

Jaxsta (ASX:JXT)

Redleaf Securities have been long-time supporters of the world’s largest dedicated database of official music credits, which in February announced plans to acquire Vampr.

Vampr is the world’s largest music creator networking platform/app and is like a social network connecting musicians, creatives and artists so they can collaborate, create new music and monetise their work. The acquisition provides JXT access to 1.3 million creators to drive subscriptions and is expected to finalise on June 1, 2023.

“We like to to call Jaxsta a company with microcap valuation and a billion dollar board and is heavily supported by a company in America called Songtrader,” Athanasiou said.

Songtradr is a global B2B music rights and licensing marketplace platform.

“Jaxta has the world’s biggest catalogue of music credits in the business and have signed up every label,” he said.

“They’ve also expanded into two other areas – one is Vampr which is essentially the LinkedIn of the music industry.

“The’ve also recently launched vinyl.com which is an easy and clever way of buying a vinyl record.”

Athanasiou said vinyl records are continuing to grow each year, which he thinks is embedded in culture and more than a nostalgia fad.

“A lot of youth are actually buying vinyl to show their support to the artists that they’re a true fan,” he said.

The KPO, BBT & JXT share price today:

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewee 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.