Jonathon Howe

Director, Red Leaf Securities

What’s hot right now?

Nothing, says Howe. Inflation, central bank tightening, geopolitical risks, supply disruptions – you name it, and equities are up against it. And we’ve got 10-year US Treasury yields luring capital away.

The best investors can do, Howe says, is “maintain a long-term outlook, diversify portfolios, and stay informed”. And comfort yourself with the knowledge “that market resilience has prevailed in the past”.

Yet… if you absolutely must pick a sector to invest in, Howe’s advice is technology. It’s copped the largest selloff in the past 18 months, and it’s also most likely to recover quickest once the rising interest rate cycle ends.

With that in mind, he’s plumping for these three ASX tech stocks.

Jaxsta (ASX:JXT) – 0.057c, $29m: Howe says JXT is a potentially a billion-dollar opportunity with the world’s largest dedicated database of official music credits (366 million plus), 60 million recordings, Vinyl.com with 52k of vinyl titles and Vampr, considered the LinkedIn for musicians.

The company also has the support of richlister and WiseTech Global (ASX:WTC) founder and CEO Richard White, who has a 10% stake along with US based Songtradr and its CEO Paul Wiltshire.

“It’s clear that seasoned professionals in the tech and music industry believe in Jaxsta’s mission,” Howe says.

Mad Paws (ASX:MPA) – 0.09c, $32m: The online digital platform offers a comprehensive pet service marketplace, catering to pet owners’ needs such as pet sitting, dog walking, daycare, and grooming.

You’re also buying into an e-commerce platform called Pet Chemist that specialises in prescription pharmaceuticals and over-the-counter healthcare products for pet owners.

Additionally, MPA is steadily increasing its subscription-based revenue through various verticals like Waggly toys & treats, Mad Paws Insurance, Dinner Bowl (fresh pet food), and Sash (pet beds).

Yes, this is a “humanisation of pets” play.

“MPA is the ASX’s only one-stop shop for pets outside of vets and the company keeps going from strength to strength but it is not reflected in the share price,” Howe says.

“MPA is on track for cashflow breakeven/profits in its next quarterly, so we are certainly due a re-rate from these levels if they can show consistent revenue growth and profitability.”

Platinum Asset Management (ASX:PTM) – $1.195, $701m: PTM is one of the largest equity investors on the ASX, focusing on “portfolios of listed companies from around the world”.

“PTM is a beaten down fund manager with circa $17.5 billion in FUM,” Howe says. “It’s backed by Kerr Neilson, one of the elite fund managers of our time and has been blitzed from its $5.50 highs.”

Howe notes PTM also has a buyback underway plus a solid dividend yield (circa 10%), and reckons “shares look really attractive at current levels for portfolios”.

Richard Ivers and Mike Younger

Portfolio managers, Prime Value Asset Management

“Don’t panic” is also the mantra at Prime Value, where Ivers and Younger noted a drop in forward earnings and a rise in downgrades. Weak results, yes, particularly across advertising or the media sector, retail and residential housing (rate rises), but “there were standouts”, Younger notes.

“And they’re the stocks worth watching these next months,” Ivers adds. Stocks like these:

AUB Group (ASX:AUB) – $28.52, $3.09bn: AUB’s been providing insurance broking and advisory services since 1885, primarily to SME clients.

In this latest reporting season, it’s caught Ivers’ eye for “strength across every single one of their five divisions”.

And it wasn’t just at the revenue line. Margin expansion coming through is being driven by the premium rate cycle.

From a valuation perspective, Ivers says it’s still lagging its two other key listed peers on a PE basis and looks mighty attractive.

What about divvy payouts?

“Yep,” Ivers says. “These are good – 33.7% uplift in Underlying EPS; FY23 final dividend of 47 cents.”

Hansen Technologies (ASX:HSN) – $5.34, $1.09bn: A global software and services provider to the energy, water/utilities and telecommunications industries, Younger sees HSN hitting FY24 with stout momentum and new tricks in the form of several software upgrades.

“It’s a relatively low top line growth business, but they did come through with a bit stronger revenue growth and similarly, like AUB Group, some margin expansion as well,” he says.

“And they’ve guided to even stronger revenue growth ahead, which is really vindicated by the strong contract win momentum they’ve had in the last couple of years.”

Hansen’s FY23 showed a beat on both guidance and expectations.

Revenue is materially higher recurring and repeatable (86%) than many have given it credit for across Support and Maintenance services. It’s highly-diversified too – top 10 customers make up 33% of revenue.

“The other element with Hansen is it’s a business that’s grown by acquisition and with a pristine balance sheet,” Younger says. “HSN has a pipeline of M&A opportunities, decent sized ones too – up to a half billion.”

Lindsay Australia (ASX:LAU) – $1.145, $356m: Here’s accessible exposure to “transport, logistics, and rural supply services to the food processing, food services, fresh produce, and horticulture sector”.

With EPS growth of 95%, Ivers says that’s an “exceptional result given it was all organic”.

FY24 is looking good as well after their largest competitor, Scott’s went into liquidation recently.

“They’ve also announced an acquisition of WB Hunter and on a PE of eight times FY24. That’s well below the market,” Younger notes.

“In fact, it’s less than half the market multiple, so I’m surprised that stock is not a lot higher.”

Broker upgrades

Euroz Hartleys

Matrix Composites and Engineering (ASX:MCE) – 26c, $57m: Euroz Hartleys has initiated coverage on this advanced materials manufacturer, with a Speculative Buy recommendation and a price target of 45c (vs current price of 26c at time of writing).

MCE makes specialised buoyancy modules for deep sea drilling rigs and exploration. Its 22,000m2 facility in Henderson, WA, can pump them out in the region of $240-$250m per annum.

Euroz believes that after a period of global under-investment in the oil and gas sector, the outlook looks set for a period of strong demand for MCE products. In addition, Matrix could capitalise on the huge growing demand for offshore wind over time.

The industry also has high barriers to entry. The few global competitors the company has are in the Northern Hemisphere, which gives it operating advantage servicing ASEAN regions.

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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