ASX small caps that lit a fire under our experts this week.
SUNDAY ROAST: The small caps that lit a fire under Stockhead’s experts this week
Experts
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Guy le Page
Director, RM Corporate Finance
Gold was the big loser last week, down 1.8% despite a late rally lifting the yellow metal from around US$1,960/oz to close the week at US$1,977.
Silver lost 14 cents to finish the week at US$23.80/oz while palladium was up US$9 to US$1,489/oz and platinum rose US$12 to US$1,064/oz.
Our Guy Le Page reckons market sentiment has changed significantly – as measured by CME’s FedWatch tool – there’s an 81% probability that the Fed will pause rates in June.
Gold futures firmed after three days of weakness and as of 5:55pm EDT June on Friday 19 May 2023 delivery gold futures were fixed at $1979.90/oz for a $20.10/oz or 1.03% gain for the day.
And Guy has his eye on a WA gold junior that’s proving up a project about 100km west of Goldfields’ Agnew/Lawlers producing mine.
He first talked about Alto Metals (ASX:AME) at the beginning of last year, and has seen the company continue to deliver some excellent exploration numbers.
Adamant that there are some quick ounces to be added to the underexplored Sandstone tenement package, Guy notes that historical drilling has only been concentrated on the top 100m.
With a growing resource inventory, potential processing options and maybe even some takeover interest, Guy puts his money on Alto to be a pretty darn decent medium-long term buy.
Its market cap is just over $30m and shares are about 5.6c a pop at the moment.
Euroz Hartleys
The broker is looking at a Bill Beament hybrid miner/mining services provider that’s sending the best in the business underground as guns for hire and mining its own resources at the same time.
Develop Global (ASX:DVP) currently has two mining projects of its own, a 20% stake in another and a $400m mining contract at the Bellevue Gold underground gold mine.
The company is creating a bottom-up culture that sees its workforce incentivised and empowered to drive productivity at operations.
This is a unique model inspired by Western Mining Corporation in the 1990s.
“We have seen this same approach at site visits to all the assets, and previously experienced it within the unique Northern Star DNA,” said Euroz Hartleys.
“You could call this a people business with mining operations.”
Bonus points: Having Beament – of Northern Star Resources fame – at the helm bringing with him some of the best experts in their field, there could be a lot of upside.
“We initiate with a Buy recommendation with a valuation of $3.57, and a price target of $3.90.”
Moving on to Evolution Energy Minerals (ASX:EV1) and Euroz sees an ASX-listed explorer digging up impressive, high-grade graphite in Tanzania and a good speculative buy.
EV1 has released a DFS and an offtake deadline for first production this year.
Its Chilalo mine plan wants to sell graphite concentrate by the kilotonne and move into a micronised product which sells for more, as well as toll treating expandable graphite that sells for a whopping US$6,000k/t.
“Our price target is 76cps, given the risks around achieving the key financials assumptions embedded in our valuation,” Euroz said in a note.
“This valuation includes 60cps of growth beyond what’s envisaged in the DFS.”
MA Moelis
Broker MA Moelis says it has put an undeserved target price on surface and underground drilling services provider DDH1 (ASX:DDH) of $1.23 (versus the current price of $0.84) purely because of current soft demand, but believes the rest of the year looks peachy.
Drilling giant DDH1 – with its 72 diamond drilling rigs – is taking advantage of an expected uptick in exploration that MA Moelis reckons will last throughout the rest of this year.
Another tailwind for the driller is that gold has enjoyed strong price growth in 2023 rising from about US$1825/oz at the beginning of the year and currently hovering around the US$1,950/oz mark.
A strong lithium outlook for the year should also keep the rigs spinning for explorers and developers as they seek to capture investor sentiment with positive results at their projects.
The same could be said for miners jumping into critical minerals.
“We hold the view macro and capital markets momentum appears to be on an improving trend into the remainder of CY24, which we think will translate to stronger demand and utilisation for DDH,” said the note from MA Moelis.
Due to the current soft demand however, the broker says its price target on DDH has decreased to $1.23 (previously $1.35), but has maintained its Buy rating.
“We note DDH continues to trade at a significant, and undeserved, discount of 48% to its mining services peers.”
Paul Cross
VP Customer Success, Docusign
Paul Cross is tipping stocks related to the ‘anywhere economy’ – think digitisation, computer tech or data security.
He said the trend to WFH had already set in before COVID, the pandemic just lit a fire under its tooshie.
“The digital connectivity, which really drives all of this, has been around for a couple of decades,” Cross told Stockhead.
“And the anywhere economy was building on top of that, but pre-pandemic, you’d say it was very much in the early adopter phase.”
He reckons technology, especially those that enable offline activities to be brought online – will have a major role in the anywhere economy.
“DocuSign was at the forefront of that, taking paper agreements and turning them into something that is digital,” Cross explained.
Platforms such as Zoom, cybersecurity solutions, chip makers and even home furniture retailers are highly sought after.
Cross believes AI is becoming widely commercialised and we’ll soon see it more embedded into industries.
Here’s a selection of stocks that could ride the anywhere economy wave.
BrainChip Holdings (ASX:BRN) is involved in neuromorphic computing, a type of AI that simulates the functionality of the human neuron and is working on commercialisation of its Akida chip that improves security functionality.
Akida basically mimics the human brain to analyse only essential sensor inputs at the point of acquisition, processing data with efficiency, precision, and economy of energy.
BRN says keeping machine learning local to the chip, independent of the cloud, also dramatically reduces latency while improving privacy and data security.
archTIS (ASX:AR9) is a data-centric security technology company will prevent malicious and accidental loss of information for its clients.
The company has continued its market expansion recently, entering into new sales regions in the US, Europe, and Singapore.
It also has a contract with the Australian Department of Defence.
This company is a pure play online retailer, and its sales surged significantly during lockdown periods.
TPW has invested heavily in its technology, launching its artificial intelligence-generated room ideas on the iOS app platform.
The app could become a game-changer as more people transition to online purchases for furnishings.
We’ve all seen Nick Scali’s retail stores, but its online platform is starting to gain popularity, with online sales soaring during the pandemic.
The company has plans to expand its ANZ footprint by opening dozens of new showrooms across both markets over the coming years.
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.
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