SUNDAY ROAST: The small caps that lit a fire under Stockhead’s experts this week

Luke Winchester

Managing director, Merewether Capital

‘Sustainability’ sounds like a good future bet, but the reality is, it’s not performed remarkably in recent times. However, Winchester says there are ASX companies “executing well with tailwinds”.

Yes, you can have a stock that’s good for the planet and your wallet. Maybe it’s one or all of these three.

Rectifier Technologies (ASX:RFT) manufactures power conversion modules, which is a great space to be in as the electric vehicle industry shifts from home alternating current (AC) slow charging to public direct current (DC) fast charging.

Winchester says RFT has “a backlog of orders” for its RT22 electric charger module. In fact, it has orders “from two key customers worth over US$40 million which they are now beginning to execute”.

RFT’s last report looked solid – revenue tripled, profits up more than 800 per cent as it began to clear that backlog, brought about by Covid era supply chain issues.

If it has a second half like that first ($3.8m net profit), you’re looking at a future-facing company with a $68m market cap that trades on less than 9x earnings.

Laserbond (ASX:LBL) provides surface coating services for heavy industry and mining to vastly lengthen the service life of heavy machinery.

Revenue was up 40 per cent and profit up 32 per cent in February reporting, and Winchester thinks the business is “positioned to thrive”. It’s pursuing a strategy of acquisitions and implementing its proprietary tech.

“With a stronger second half the business trades on less than 20x earnings,” Winchester says.

Vysarn (ASX:VYS) is a hydrogeological drilling (dewatering) company, generally considered a “low quality” segment. But VYS is flipping the script, diversifying into the test pumping and aquifer recharge space, and entering a joint venture in water storage.

And the quality of its clients can’t be ignored – it’s got rigs across long term contracts with none other than BHP, Rio Tinto and Roy Hill.

Winchester says the initial signs are “fantastic”, with each segment performing better than expected.

Upgrades and undervaluations

Barclay Pearce Capital has initiated research coverage on Autosports Group (ASX:ASG), with a target price of $3.44 (current price $2.16) and a Buy recommendation.

Yes, we’re talking car sales here – new and used, but also finance and insurance products, aftermarket products and spare parts, and repair services. The full circle.

If you’ve tried to buy a new car over the past two years, you’ll be not surprised to learn demand in the luxury auto market is expected to continue exceeding new vehicle supply.

ASG’s recent acquisitions are all over that. And in the last half, it reported a revenue increase of 16.6% to $1.06 billion, and a 71% increase in NPAT to $35m.

Consider this one a hedge against those rising prices holding you back from that new Hilux.

Taylor Collison has also issued a Buy recommendation on Trajan Group (ASX:TRJ) with no target price.

This family run business began listed life in June 2021 and has pursued a relentless acquisition strategy of analytical and life sciences products and devices used in the analysis of biological, food, and environmental samples.

Again, as a supplier it was hit with, well, supply chain issues. But its capital equipment order book continues to grow and “underpins 2H revenue”.

Taylor Collison says Trajan’s double-digit organic revenue growth of 18.6% is well above industry CAGR average of around 5-6%. Its last four acquisitions have all performed at or above management’s expectations – and it’s reduced its net debt by 28%.

Dylan Zhang

ASX equities analyst, Stake

And finally, a quick check-in with online brokerage platform Stake to see what’s been floating retail investor boats in the volatile times.

For starters, a 65% increase in buy orders of Northern Star Resources (ASX:NST) over the past week, and a 52% increase in buys of the Global X Physical Gold ETF (ASX: GOLD). No surprises there.

But Zhang says there are three standout stocks on Stake right now:

– Domino’s Pizza Enterprises (ASX:DMP). “Inflation is cooling, yet consumer confidence is still weak, and this could work in Domino’s favour as people look for cheaper food options.”

– Neuren Pharmaceuticals (ASX:NEU). “The product (Daybue) is set to be available in the US by the end of April, and Neuren is entitled to royalties and milestone payments under a licensing agreement with Acadia – with income totalling more than $50 million after the first commercial sale alone.”

– and Droneshield (ASX:DRO). “Has had no issues in raising capital or growing revenue since the deployment of its products in Ukraine to take down Russian drones.”
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.