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

Let’s start with real estate investment, minus the hassle of dealing with agents, tenants, taxes, interest payments and maintenance.

Ashton Reid

Portfolio manager for real estate, Martin Currie

There’s more to real estate than residential. In fact, one real estate market in particular hasn’t done so well at all over the past couple of years – REITs.

Real estate investment trusts focus on shopping malls, warehouses, office towers and the like, and the Covid lockdowns were not kind to them.

We can see 22 of the 41 REITs on our list at Stockhead recorded double-digit losses in their share price over the past 12 months, and the struggle is still real.

In fact, as Reid notes, “foot traffic in shopping centres is still below pre-Covid levels”. Add to that, interest rate rises tend to affect REITs more sharply, because “they tend to have shorter term debt and cost of that debt is repriced in quite quickly”.

But with that, comes opportunity, Reid says, in the form of REITs that have “pricing power” and the ability to raise rents quickly to outpace those higher interest costs.

And the first place Reid sees REITs bouncing back in this WFH era is in the ‘burbs, across three categories – Everyday retail, High-end discretionary and Industrial.

In Everyday Retail, Reid likes Region Group (ASX:RGN), Charter Hall Retail REIT (ASX:CQR) and HomeCo Daily Needs REIT (ASX:HDN). They’ll give you exposure to big supermarket tenants like Woolies and Coles, who can afford a rent raise. And in CQR’s case, petrol stations, whose leases are linked to CPI.

For High-end Discretionary, Reid plumps for malls such as Westfield, owned by the likes of Scentre (ASX:SCG) and Vicinity Centres (ASX:VCX).

Industrial rents cover logistics space, which has been one of the Covid winners due to the growth in e-commerce.

“Industrial rents are up strongly with new leases signed in industrial spaces which have expired from five years ago anywhere from 30 to 40% higher,” Reid says.

Among REITs in this space are GPT Group (ASX:GPT), which also owns shopping centres including Melbourne Central and High Westfield Penrith malls, National Storage REIT (ASX:NSR) and Abacus Property Group (ASX:ABP) which owns Storage King.

If that’s all a bit much to cover, the BetaShares Martin Currie Real Income Fund (ASX:RINC) is an actively managed fund mixing REITs, infrastructure and utilities. For that, you can read “exposure to the megatrend of population growth”.

Euroz Hartleys

This week’s stock upgrades come courtesy of Euroz Hartleys, which sees huge upside for Botanix Pharma (ASX:BOT). It’s put a Speculative Buy call on the company with a target price of 27c vs the current price of 6c.

So when does that action kick off? Well, it’s all based on whether Botanix can get FDA approval in Q3 for its Sofpironium Bromide New Drug Application (NDA). The agency recently said the submission last September is now formally under review.

Sofpironium Bromide is a drug that treats excessive sweating, and Euroz Hartleys believes it could potentially do +$130m of sales in the US within its first year based on the number of prescriptions the drug is currently doing through its partner in Japan.

Barry FitzGerald

A quick update from Garimpeiro on his strategy in August last year of taking advantage of the “grand sale” in companies that had made Tier 1-type discoveries but weren’t being treated like they had.

The notion was that Tier 1 discoveries always shine through in the long run.

Two of them have done just that – De Grey (ASX:DEG), running from $1 last August to $1.37 this week, and Chalice (ASX:CHN), whichhas moved up from $4.85 to $6.15.

Rumble (ASX:RTR) has let the team down a little, falling from 27c to 21c. But it’s got the release of its maiden resource estimate on the radar.

This week Fitz has popped in to add a new Tier 1 player to his hallowed list though – Patriot Battery Metals (ASX:PMT). The Canada-focused lithium play listed on the ASX in December, and keeps dropping huge drilling results. Mineral Resources (ASX:MIN) and Pilbara Minerals (ASX:PLS) “are both rumoured to have been nibbling their way on to the share register”.

“Watch out for more grade hits from the emerging super-grade zone at CV5 in coming days,” FitzGerald says, adding that “Tier 1 finds of any description don’t come along all that often.”

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.