Analysts say these ASX small cap tech stocks are pursuing their next growth phase
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Equity analysts reckon small cap ASX tech stocks are capitalising on a rebound in the sector in 2023 to pursue growth.
2023 has been a confusing year for investors. There’s been headlines of doom and gloom around higher interest rates, inflation, possible recessions and global political tensions playing on markets.
But there’s also been pockets of the markets which have been rebounding and performing well. After a particularly rough year in 2022 with growth stocks tumbling as cost of financing amid raising rates rose the technology sector has rebounded in 2023.
Hype around artificial intelligence (AI) has helped bolster the sector with the US tech heavy NASDAQ composite index up more than 30% YTD, while at home the S&P/ ASX All Technology Index (ASX:XTX) has enjoyed a 25% gain for the same period.
Red Leaf Securities director Jonathon Howe reckons many ASX small-cap tech stocks are now working towards their next stage of growth through various avenues from expanding overseas to achieving profitability.
“Small-cap tech stocks listed on the ASX are rapidly expanding their global footprint and also asserting their dominance in Australia, driven by a number of factors including strategic acquisitions, securing major contracts, and achieving profitability milestones,” Howe says.
“With global markets being rough and tumble over the past 18 months, we are seeing the agility and innovation of these small cap tech companies to become key players in shaping the future of the tech industry on both domestic and international fronts.”
Salter Brother analyst Advait Joshi says capital has been and continues to be very tight for growth companies in 2023 and those with access to growth capital to scale up are at a significant advantage to the majority of their peers.
“Companies that are scaling up have an opportunity to forge a sustainable competitive advantage in this dynamic environment,” he says.
Salter Brothers recently launched a wholesale tech fund to support companies who are looking to scale up and take advantage of the limited capital available in the current market conditions.
“Despite this broader capital market environment the rate of change and disruption driven by technology is as significant as ever for both corporates and individuals.” Joshi says.
“The rapid acceleration and adoption of AI is just the latest example.”
Here’s some of the ASX tech stocks we’ve noticed on a growth trajectory.
2023 is shaping up to be a big year for the world’s largest dedicated database of official music credits. In May JXT launched VINYL.com, a global music products marketplace, featuring a deep catalogue of more than 50,000 vinyl records across all genres.
On June 1 the company acquired Vampr. Dubbed “the LinkedIn for creatives”, Vampr has grown to become the world’s largest social-professional network for musicians, with 1.3 million users. Founder and head of Vampr Josh Simons was announced the new CEO of JXT.
WiseTech Global (ASX:WTC) founder and CEO Richard White in June also became a substantial shareholder with a 9.64% holding in JXT as part of its $3 million capital raise.
In August the company announced a landmark deal with the Mechanical Licensing Collective (theMLC), a non-profit organisation established under the Music Modernization Act of 2018, created to issue blanket mechanical licences for qualified streaming services in the US such as Spotify, Apple Music, Amazon Music and Tidal.
The MLC announced it had paid more than US$700 million in royalties to songwriters and publishers in the first 18 months of operation.
The contract was secured following a global tender with JXT saying the contract showed the commitment by the MLC to have the best possible data to meet its mission of distributing royalties with the highest degree of accuracy to rights holders.
“Partnering with the MLC further solidifies Jaxsta’s reputation as an enterprise solution provider and illustrates the direct applicability and scalability of our service and proprietary clustering technology,” Simons says.
NET announced in September it had undertaken a capital raise with sophisticated and institutional investors for up to $12 million and last week executed a convertible securities facility to raise up to $10 million to restructure debt and finance its “well progressed growth strategy”.
The initial drawdown of the convertible securities facility with US investor Obsidian Global GP, LLC will see NET receive $2.25 million in funds.
Global network solutions vendor NET entered a reseller deal in November 22 with SpaceX to sell its Starlink satellite-based high-speed, low-latency broadband internet globally.
The agreement forged a direct channel to market for NET’s proprietary network solution called the Virtual Secure Network (VSN) as part of the broadband services.
NET has also established partnership arrangements with Hutchinson Global Communication (HGC) of Hong Kong, ALT Communications of Bangkok, Spark New Zealand, and PT&T of the Philippines.
The company says its partnership with HGC is another major opportunity to deliver a Network as a Service (NaaS) offering to enterprises globally.
HGC is providing NET with 26 data centre locations around the world as well as access to all its optic fibre cable as the infrastructure to power the NaaS.
“The funds raised from the convertible securities facility, together with other recent equity and debt initiatives, provides the company with the additional funds required to finance its well progressed growth strategy,” NET says.
“While these expansion plans are initially Asia Pacific-focused, Netlinkz has already undertaken initial work targeting a much wider global footprint that also includes Europe and the Americas.”
Payments technology provider SPX saw its share price jump ~8% on Tuesday on news it had inked a 10-year partnership deal with automotive organisation Capricorn Society to supply software and e-commerce payment services.
The contract hinges on the successful execution of a digital services delivery (DSD) project jointly undertaken by the SPX and Capricor.
Upon successful completion of the project’s final phase, SPX is set to earn $443k. Additionally, the company is slated to receive $1.3 million in development fees for the commercial launch scheduled for early 2024 and are guaranteed a minimum monthly recurring revenue of $100k from software licensing fees.
Separate to the licensing deal, Capricorn will have the opportunity to stage a $7.2 million cornerstone investment, able to subscribe for up to 412 million SPX shares at $0.0175 each, representing a 77% premium to the 30-day volume weighted average price of $0.0099.
Founded in 1974, Capricorn was established to provide assistance to automotive industry enterprises and has a network exceeding 26,000 members with a roster of more than 2,000 preferred suppliers spanning across Australia and New Zealand.
In an announcement to shareholders SPX managing director and CEO Adrian Floate says the signing of this binding term sheet with Capricorn represents a transformational commercial opportunity for Spenda.
“This represents a significant partnership for both Spenda and Capricorn that lays the foundation for long-term growth for both parties over time,” he says.
SPX has also announced it had entered the agricultural vertical after inking a deal to integrate early payment services to grain growers onto the AgriChain platform.
The digital platform provides an extensive marketplace for pet services, addressing the needs of owners such as pet sitting, dog walking, daycare, and grooming.
MPA has a diversified revenue structure that includes an e-commerce platform known as Pet Chemist, specialising in offering prescription pharmaceuticals and over-the-counter healthcare products for pets.
Furthermore, MPA is steadily increasing its subscription-based income through several different segments, including Waggly toys & treats, Mad Paws Insurance, Dinner Bowl for fresh pet food options, and Sash for pet beds and accessories.
“MPA is poised to reach cash flow breakeven/profits in is next quarterly and has been showing continual growth and expansion,” Howe says.
A pick of Joshi Ai-Media is a global leader in providing high-quality live and recorded captioning, transcription and translation services.
He says AIM’s iCap cloud platform deploys the latest AI and is the largest closed captioning and subtitle delivery network in the world.
“Customers include major broadcasting companies along with corporates and Government for internal communications platforms. Examples include Foxtel, Channel 7, Google and various government clients around the world,” he says.
“The global growth opportunity is significant with the company well positioned to benefit from the fast emerging improvements in artificial intelligence, especially in the live transcription space.”
He says AIM is positioning itself for significant global growth the back of the release of their next generation platform called Lexi 3.0 and the ongoing developments of AI.
In announcing its FY23 results co-founder and CEO Tony Abrahams told the market AIM’s focus on profitable growth delivered a 200% increase in EBITDA to $3.3 million which flowed through to an 84% improvement in operating cashflow of $3.5 million.
“Having proven out the operating leverage potential of the business we are now looking towards the next high growth opportunities in adjacent markets and territories,” he says.
Another pick of Joshi MDR is a medtech company which provides pharmaceutical companies and pharmacies medication adherence solutions for their patients via both in person as well as digital offerings.
“The company has a leading share of the Australian adherence market and is focusing on expansion in the US market with higher value offerings as its next leg of growth,” he says.
Joshi says the opportunity for MDR is large with pharma companies spending >$6.5b on D2C digital marketing globally.
“The opportunity for MDR is enriched with companies increasingly taking use of software to engage with patients and manage healthcare outcomes,” he says.
In its recent FY23 results MDR saw revenue up 44.6% YoY to $98 million supported by growth both in Australia and the US with gross margin of 60.6%, up $24.5 million YoY.
The company says it is continuing momentum on its pathway to profitability, which is forecast for FY24.
At Stockhead, we tell it like it is. While Netlinkz is a Stockhead advertiser, it did not sponsor this article.