Three ASX Small Cap Investment Ideas
In the past 12 months Under the Radar Report has covered 18 new Small Caps, or more than one every three weeks. Some of them have done particularly well, like the lithium producer Pilbara Minerals (PLS) (up almost five-fold); the security technology company AVA Risk (AVA) (locked in a threefold plus return), and the engineering technology group LaserBond (LBL) (doubled). Overall the stocks have generated an average return of 47%, which is pretty good when you consider that the average time we’ve been active on these stocks is four months. In a recent issue (#452 on 24 June 2021) we analyse 16 in detail, but here are our top 3 for nabtrade customers.
Read more about Investing in Small Caps. Why we picked these ASX Small Cap gems and their outstanding performance
ASX Small Cap: Pilbara Minerals (PLS)
Up 377% since we last tipped our Subscribers 8 months ago
Sector: Mining services
Market Cap: $4519.3 M
Share Price: $1.585
Dividend Yield: 0%
When we got excited about Pilbara at 32 cents in October last year it was a Small Cap with a market valuation of close to $700 million. Fast forward 8 months and it's well over $4 billion. This is a star small cap that has entered the big league!
We continue to be attracted to the lithium commodity because of a looming lithium supply deficit for electric vehicle batteries. PLS's West Australian Pilgangoora lithium resource is one of the largest hard rock lithium deposits, is producing, and is poised to increase production with offtake agreements with several battery producers.
Pilbara is going from strength to strength. In December 2020, PLS announced the acquisition of the neighboring Altura Pilgangoora project, comprising a mine and processing plant that had successfully operated before receivership due to low lithium prices. The miner’s Stage 1 nameplate capacity of 330k tonnes a year spodumene (lithium concentrate) capacity, can now be expanded to 1m tonnes.
ASX Small Cap: AVA Risk (AVA)
Up 267% since we last tipped our Subscribers 5 months ago
Market Cap: $108.7 M
Share Price: $0.44
Dividend Yield: 6%
AVA's journey has been a wild ride since its 2015 IPO, being involved in the consolidation of loss making businesses. AVA's optic sensing technology back then was only used in perimeter security and monitoring oil and gas pipelines. It now has multiple applications involving data network security, road, rail, power cables, and conveyer monitoring. It has made some acquisitions, which have further diversified its business into locks and special package delivery.
When we first tipped AVA in late July 2020 the company was a month away from announcing its FY20 results for the 12 months to 30 June but we had confidence in a company that had a patchy track record. Why was this? The company had been producing positive operating cash flow, primarily due to a contract with the Indian Ministry of Defence. This was, admittedly coming to an end, but we could see that the company’s technology was being commercialised in a number of areas and that its transport division (AVA Global) had built up a strong niche.
We did well to take profits at over 60 cents less than five months later in late December 2020, at more than three times our initial tip price, although subscribers who have held on are still doing very well. We upgraded to Hold following weakness.
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ASX Small Cap: LaserBond (LBL)
Up 98% since we last tipped our Subscribers 11 months ago
Market Cap: $95.1M
Share Price: $0.96
Dividend Yield: 1.2%
Who says manufacturing is dead in Australia? Certainly, not subscribers who have almost doubled their money in less than a year. Nor does LBL's manufacturing customer base, both in Australia and now in the US. Late last month LBL signed a licencing agreement with a North American manufacturer of high-performance products and equipment largely used in primary industries. The license involves the supply of LaserBond's cladding equipment during FY22 providing revenue of $1.5m, with ongoing license fees of $144k a year and up to approximately $670k a year in consumable sales, for a term of 7 years.
We continue to like LaserBond because of the strong demand for its surface technology, which reduces wear on vital components, lowering operating costs and extending equipment life.
When we first covered LBL the company had revenues of $22m and had downgraded profit forecasts causing a 20% decline in its shares. This announcement helps put it on track to achieve its FY22 target of $40m, which would be a pretty amazing achievement.
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