SATURDAY ROAST: The small caps that lit a fire under Stockhead’s experts this week
Cashed up junior lithium with a side of gold? Sounds like a hedge tailor-made for these Days of Uncertainty and Transition.
One stock that potentially fits the bill, according to Le Page, is Red Dirt Metals (ASX:RDT, market cap $145m, 35c). It’s just lodged a direct shipping ore proposal with the WA Department of Mines, Industry Regulation and Safety.
That’s a good sign it’s on track for production mooted to come online late this year. Also, it’s got a non-binding four-year MoU for offtake of up to 45,000tpa of spodumene concentrate signed last year in place.
Le Page has previously noted “impressive” pegmatites at its 100% owned 575km2 Yinnetharra Lithium Project in WA. But also mildly intriguing – peggies at its Mt Ida project are “interspersed with gold resources”.
Pretty decent ones too, with Inferred and Indicated Resources of 318,000 tonnes @ 13.8g/t gold for around 140Koz.
“At an enterprise value of just over $100 million and around $50 million in cash I remain optimistic on this spodumene +/- gold play,” Le Page says. “Given the recent money was set at 50 cents I am thinking 37.5 cents could be an attractive entry price.”
Lead portfolio manager, Tribeca Investment Partners
So, in a “challenging” economic environment, are you shooting for growth stocks or value stocks?
Why not both? It’s a good enough strategy for Jun Bei Liu.
Liu sees growth to be had in Ramsay Health Care (ASX:RHC) and accounting darling Xero (ASX:XRO). XRO’s been hit hard by the economic slowdown, but Liu thinks its story is ready to transition from “one of purely growth to growth with profitability”.
“Xero is disruptive technology which is taking share away from the old accounting system and its market gain will more than offset economic activity – it also has a demonstrable market share in the UK, Australia, US, and New Zealand.”
At $52.41, DMP is well off its Covid-driven September ’21 highs around the $165 mark, but Liu reckons “in the longer term the story hasn’t changed”.
“Domino’s is a business you buy for the longer-term growth trajectory with its growth potential across its addressable markets.”
There’s a phenomenon, noted only by people who look for such things, that pops up in times of economic uncertainty known as the “Lipstick Effect”.
We here in developed markets tend to cut back on our big luxuries – holidays, date nights, the Lexus… but splash out a little bit more on cheap stuff that makes us feel good.
In the 1999-2000 recession, lipstick had a good run. During the GFC, it was nail polish’s turn. Mascara seems to always be a good bet, along with good scotch whisky.
So when Broker Taylor Collison puts an Outperform recommendation on Silk Laser Australia (ASX:SLA, market cap $117m, $2.22), and views SLA’s current share price as an opportunity to buy into the highest quality self-care operator in a growth market, maybe there’s… something in that.
“We see non-invasive medical aesthetics as less vulnerable than commonly thought during an economic downturn,” Taylor Collison noted.
We’re talking about the go-to clinic for all things laser, skin, inject and body treatments. SLA has some 127 clinics across Australia and has expanded steadily since it IPOed in December 2020 with 50 clinics.
In fact, Taylor Collison sees SLA hitting a saturation point, at which point it has “multiple options with which to deploy its capital, including share buybacks or paying dividends”.
It also rated Adacel Technologies (ASX:ADA, market cap $47m, 62c) as an Outperform despite a disappointing first half.
Adacel deals in the air traffic management and air traffic control. According to the broker, ADA can double its annual revenues over the next 18 months based on the award of six tenders, although the effect will only start to flow through into the financials in FY25.
Emeco Holdings (ASX:EHL, market cap $376m, 73c) provides open cut and underground mining equipment and maintenance supporting junior, mid and tier 1 explorers. Yes, this is a “picks and shovels” play.
In the last half, revenue rose 15% on pcp to $429.5m, while operating EBITDA dropped 7% to $113.5m.
The company has guided the market to a full year EBITDA of $245m – $260m for the full year of FY23.
Barclays believes demand for mining equipment will stay strong. It also believes EHL can increase that EBITDA over the next couple of years, to $276m in FY24 and $287m in FY25.
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.