Tru Datt: Three ASX Small Caps to keep in your back pocket for '24

Welcome to Tru Datt, a Stockhead exclusive featuring the insights and opportunities as per Emanuel Datt – founder and chief investment officer at Datt Capital – a Melbourne-based investment manager focused on identifying growth and special situation investments.

Emanuel has built a team of ‘highly opportunistic and disciplined investors’ – with a strong emphasis on risk control.

In this series, Emanuel will discuss investment opportunities from a long-term philosophy, targeting nothing less than SAWA – Sustainable Absolute Wealth Accumulation.

What’s hot right now

Like many analysts Datt reckons 2024, with inflation looking like peaking and an end to the rate hiking cycle of central banks in sight, could be the year for small caps to bounce after a tough couple of years.

“We expect the small cap sector outlook in 2024 to remain robust, largely driven by corporate activity, improving earnings outlook and improved investor perceptions,” Datt says.

“We anticipate the best small cap sectors to have exposure to will be in financial services, resources and health sciences.”

Top picks in small cap sector

WA1 Resources (ASX:WA1)

“WA1 holds a globally significant and critically strategic niobium deposit in the world’s best mining jurisdiction, Western Australia,” Datt says.

In December WA1 confirmed continuity of a shallow high-grade blanket of niobium mineralisation between the western and eastern zones in the Luni deposit at its 100%-owned West Arunta Project.

As Stockhead’s Josh Chiat reported, Companhia Brasileira de Metalurgia e Mineracao is the world’s primary supplier of niobium products from a single mine in Brazil’s Araxa State, with around 460Mt of ore at grades mined from open pits at between 2.5-3% Nb2O5 according to the Tantalum-Niobium International Study Center.

Other market participants are tiny, boasting resources at far lower grades and inventories in the range of 2-20Mt. WA1 has become a market darling on hopes it could break the virtual monopoly for the material, largely used in iron and steel production.

“We expect upside from further derisking of the project, towards commercialisation,” Datt says.

“The company has just completed a $40 million capital raise that should provide almost two years of funding runway, and we anticipate strong newsflow from the project this year.”

SelfWealth (ASX:SWF)

Datt says SWF are the largest independent online broker in Australia, holding a strategically important market position at critical mass.

“We believe that a robust listed market that is pushing all time highs should translate into broader investor activity over time, which we have observed in the results of similar financial services companies,” he says.

“We also anticipate a significantly improved competitive environment, with smaller brands in the space, winding down,” providing exposure to strong positive externalities.

“We believe the company remains modestly valued, given its large customer base and profitable operations.”

At its AGM in November new chair Christine Christian told shareholders FY23 was a year of change including with a board and management team restructure.

“The company restructured the board and the senior management team to ensure Selfwealth has the right team to lead the organisation through the company’s planned transformation and change program and realise the future potential of this well positioned company,” she said.

“It is pleasing that even with this considerable change during the year Selfwealth has navigated this period gracefully and remained on track to deliver its maiden profit.”

US MASTERS RESIDENTIAL PROPERTY FUND (ASX:URF)

URF was established back n 2011 to give investors exposure to US residential property and is the largest Australian-listed property trust with a primary strategy of investing in freestanding and multi-tenant US residential property in the New York metropolitan area.

The fund is focused on seeking to achieve long-term returns through a combination of income from rental yields along with potential long-term capital growth.

URF now has 842 housing units across 452 freestanding properties, with a gross asset value of ~AUD$971 million (as at September 30, 2023).

All its New York metropolitan area residential investment is conducted through its controlled entity US Masters Residential Property (USA) Fund, a Maryland Real Estate Investment Trust (US REIT).

“This vehicle trades at a large discount to net tangible assets despite being in wind-down mode,” he says.

“We anticipate that the progression of the windup will continue to progress this year.”

The WA1, SWF, URF share price today:

Emanuel Datt is the founder and chief investment officer at Datt Capital.

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.