Below, I’ve included the names of 4 small-cap shares that are on my radar.

The names of these companies first appeared as part our members-only investment and online advice website, Rask Invest.

A word of warning: these shares are NOT official investment ideas as part of Rask Invest. And, remember, investing in shares involves considerable risk. Please read my disclaimer at the bottom of this email.

If you want to be the first to receive my actual investment ideas or try Rask Invest, use the button below. I’m offering a 7-day full money-back guarantee for all new members.

Being Small Has Its Perks

Investing in small companies or ‘small caps’ have their benefits. They’re typically less well researched by other investors, have equal or better growth potential than their larger peers and there are more of them.

Conversely, they can be higher risk, often swinging wildly in price. Therefore, investors need to keep their wits about them and consider the risks of investing before doing anything else.

4 Small Cap Stocks I’m Watching

In no particular order…

OneVue Holdings Ltd (ASX: OVH)


Source: Google Finance. Past performance is not a reliable indicator of future performance.

OneVue Holdings is an investment fund and superannuation management technology business.

In the past, when an investor wanted to invest their cash with a big-shot fund manager they would have to manually fill out paperwork and transfer cash. As you can imagine, it was painful and cumbersome. After an investor deposited their money the fund manager would send them periodic updates and charge hefty fees.

Platforms, which are basically a piece of software for tax and investment reporting, were born to fix the issue. But they had one big problem: fees. Platform fees can be very expensive and, like the fees on your Super, compound against you.

With a few acquisitions and internal investment in software development, OneVue created a platform for investors and advisers, and a management service for Super funds and fund managers. OneVue’s low-cost fund services not only help investors but they help fund managers whose fees are being squeezed by competition from index funds.

OneVue’s history consists of both organic growth, acquisitions and (more recently) divestments. The addition of Diversa in 2016 virtually doubled the size of OneVue.

Although OneVue is very interesting I’m not convinced it has a moat or competitive advantage. I also prefer technology companies with a clean track record of organic growth.

Citadel Group Ltd (ASX: CGL)


Source: Google Finance. Past performance is not a reliable indicator of future performance.

Citadel Group is an ACT-based $330m (plus) software company. I like software providers because they are often quite defensive businesses, can generate a decent amount of free cash flow and can traverse geographical boundaries with relative ease.

(Unfortunately, these qualities are not exactly a secret.)

Citadel’s software is used in all manner of sticky and defensive industries, ranging from health and data analytics to defence and laboratory testing.

Citadel was listed on the ASX in 2014 and has made a few acquisitions and expanded its software into complementary markets and brands. It owns Charm, which is a health system for oncologists to track a patient’s journey from diagnosis to recovery, and Kapish, a record-keeping and documents management business.

The company’s senior management — and the board — have some skin in the game, which is always nice. Citadel Group entered 2018 with a slight net debt position.

DiaSorin SpA (BIT: DIA)

Source: Google Finance. Past performance is not a reliable indicator of future performance.

If the name of this one looks a little unusual it’s because it is unusual. It only came across my desk recently, so there’s a lot I don’t know about it. DiaSorin is an Italian biotechnology company with a market capitalisation of around EUR$5.4 billion ($8.5 billion), according toGoogle Finance.

I’ll admit it may not be a ‘small cap’ by Aussie standards but bear with me…

DiaSorin creates blood testing machines and kits for hospitals and laboratories around the world. It has customers in Australia.

Its management team is headed up by CEO Carlo Rosa who, along with three others in the team, lead a management buyout of the company in 2001. He steered the company to a stock exchange listing in 2007 priced at 12 euros. Shares are currently priced at 96 euros, according toGoogle Finance.

Missing out on the tremendous gains of CSL Limited (ASX: CSL) linger with me today. But biotechnology can be a high-risk industry. At the small-cap end biotech is more like a financial minefield. Overlaid with geopolitical concerns in Italy and the Eurozone, and DiaSorin necessitates an exponential amount of due diligence — which I have not yet completed.

However, with virtually no debt, revenue tripling in 10 years and a four-fold increase in free cash flow since listing on the Milan exchange it’s certainly an interesting company and one I’ll watch closely.

Adacel Technologies Ltd (ASX: ADA)


Source: Google Finance. Past performance is not a reliable indicator of future performance.

Back to Australia, Adacel is an ASX-listed technology company headquartered in Melbourne. However, much of its operations are overseas, in North America.

Although Adacel sells some hardware it’s really a software company. It develops Air Traffic Control simulation systems and Air Traffic Management software. Some of its biggest customers are Lockheed Martin, the USA’s Department of Defence and FAA. While big customers can be a bonus it can also create problems if a company’s revenue becomes too concentrated on just a few customers.

I like Adacel because its products are sold via a printer and cartridge type model. Meaning, once an ATC system is installed at an airport, Adacel can then earn fees from maintenance and software updates.

In 2017, more than half of Adacel’s revenue came from servicing its technology. And because of the strong IP inside the business, the company is able to consistently earn gross margins in excess of 30%. Silvio Salom, Adacel’s founder, is still involved in the business although he is in a non-executive position.

Adacel appears cheap given its recent sell-down. But, its contracts can be lumpy and the company has cited strong competition in recent times. Therefore, until more research can be done, on my watchlist it shall stay.

Patience Is Key

All an investor needs to do is look at the major stock exchange indices (e.g. ASX 200, S&P 500) to know that now is the time to be patient and intensely focused on valuations.

Indeed, these four companies appear to hold lots of promise. However, I’m not convinced their shares represent good value today.

As a long-term investor, I know time is on my side and patience won’t lose me money. That’s why I’m prepared to wait for more compelling opportunities.

Cheers to our financial futures!

Owen Raszkiewicz
Founder, Lead Adviser of Rask Invest
The Rask Group

P.S. of the 7 deadly sins, investors can forget about envy because it’s the only sin you’ll never get any satisfaction from, at all – Charlie Munger
P.P.S. I prefer gluttony!

 

Disclaimer: This article contains general financial advice and information only. That means the information does not take into account your objectives, financial situation or needs. Because of that, you should consider if the information is appropriate to you and your needs, before acting on it. In addition, you should obtain and read the product disclosure statement (PDS) of the financial product before making a decision to acquire the financial product. Owen Raszkiewicz does not have a financial interest in any of the companies mentioned. 

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