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50 cents is an arbitrary price level on the ASX but here’s a group of stocks that all come in under that level. While these micro/small caps have potential they also carry a high degree of risk, so invest wisely and consider portfolio sizing carefully.
1. CML Group (CGR:ASX)
Market capitalisation: $100 million
FY20 estimated yield: 6.1%, fully franked
Analysts’ consensus target price: 72 cents (Thomson Reuters), 71 cents (FN Arena)
Business finance specialist CML Group is an excellent example of a niche operator on the stock exchange. CML specialises in helping small-to-medium-sized businesses – or “enterprises,” to fit in with the common acronym, SMEs – with their finances, specifically in being paid.
CML’s core business is providing invoice “factoring” – also known as “debtor finance” – which provides working capital to its customers in exchange for their invoices, while they are waiting to be paid.
CML provides a payment of typically up to 80% of a client’s invoice in advance of payment from their customer (often 30 to 60 days). Effectively, it becomes owner of the invoice and takes over the “accounts receivable” role, collecting the payment. The company charges an administration fee of about 1.2% of the total invoice amount and interest on the invoices funded at about 10% a year. It takes CML on average about 42 days to collect the money: it earns the difference between the invoice proceeds and the money provided.
CML also offers invoice discounting, a product aimed at larger customers, who can choose which of their invoices to have factored; this is a lower-margin product, but a much bigger market. And in 2017 it launched an equipment finance division, focusing on funding purchase of second-hand equipment – that business that is starting to generate meaningful returns.
For the half-year ended December 2018, CML’s value of funded invoices surged by 44% to $838 million, with earnings before interest, tax, depreciation and amortisation (EBITDA) rising by 30% to $10.1 million, and underlying net profit up 71%, to $4.4 million.
For the full-year FY19, CML has reconfirmed its guidance for underlying EBITDA of more than $21 million and underlying net profit of more than $9 million, based on organic growth, a full-year contribution from its acquisition of Thorn Trade & Debtor Finance, and improved earnings from equipment finance. Total invoice volume is expected to be about $1.5 billion, compared to $1.2 billion in FY18 and $1 billion in FY17.
CML is strongly profitable, pays a growing fully franked dividend stream and is developing a track record as a very good operator.
2. Shaver Shop Group (SSG:ASX)
Market capitalisation: $50 million
Estimated FY20 yield: 6.5%, 80% franked
Analysts’ consensus target price: 53 cents (Thomson Reuters), 56 cents (FN Arena)
Floated in June 2016 at $1.05, specialist retailer Shaver Shop has been a poor outcome for float subscribers, with the shares sinking as low as 32 cents in February 2019, after a very disappointing FY18 result, in which net profit fell by 20% to $7.2 million.
It did not help that Shaver Shop revealed that it had been defrauded by a store manager who sold products through the “daigou” channel – shoppers who buy local products to sell to consumers in China – at prices significantly below the cost of goods, and falsified point-of-sale (POS) transaction documentation to conceal the fraud.
But Shaver Shop – which specialises in shaving and personal grooming products – has stemmed the bleeding, despite underlying like-for-like sales growth being flat in the first half: excluding the daigou channel, sales actually rose by 7.7%.
The company has slowed its store rollout plan, cut into its product range and started to reduce debt, in an admission that it needed to stabilise the business – the stock market liked that. As with all retailers, Shaver Shop is highly sensitive to fluctuating consumer sentiment – especially ahead of an election – but analysts see a basis now for the stock to rebuild. Of the 50 product lines that Shaver Shop stocks, 35 are unique to its stores.
SSG was able to lift its interim dividend from 1.8 cents to 2 cents, 80% franked: the reduced debt level and the relatively strong cashflow give the company confidence that the dividend payout ratio of 60%–80% of net profit can be at least maintained.
Shaver Shop expects to deliver a normalised EBITDA result between $12 million–$14.5 million – the closer to the higher end of the range the better for investors, given that FY18 EBITDA was $13.2 million. Analysts see the stock as having further scope to recover.
3. Noxopharm (NOX:ASX)
Market capitalisation: $47 million
FY20 estimated yield: n/a
Analysts’ consensus target price: n/a
Biotech Noxopharm is posting highly interesting results with its experimental anti-cancer drug candidate Veyonda, which works to boost the effect of radiotherapy in patients undergoing palliative treatment, while activating the body’s immune system. Veyonda helps the radiotherapy better target the tumour cell, not the non-tumour cell.
As a prospective enhancer of radiotherapy, the company wants to position Veyonda as a standard “adjunct” treatment to radiotherapy, “boosting the benefit of radiotherapy in the order of three times, and providing meaningful survival benefits in a safe, well-tolerated way.” The drug is also showing signs of enhancing the effect of chemotherapy as well, by lessening the toxicity of the chemotherapy process, which kills healthy cells as well as cancer cells, and can lead to long-lasting and debilitating side effects.
Veyonda, which was formerly known as NOX66, was developed by Noxopharm CEO Graham Kelly, who was previously CEO of ASX-listed Novogen (now known as Kazia Therapeutics). Famously, Kelly, who was suffering late-stage prostate cancer and facing death, tried the drug himself – and it worked for him.
Noxopharm is currently running three trial programs, two investigating Veyonda’s ability to boost radiotherapy, and one investigating the drug’s positive impact on chemotherapy. The two programs aim to prove Veyonda’s ability to be used as an adjunct treatment in the multi-billion-dollar cancer market.
In a separate program, Noxopharm and its majority-owned subsidiary, Nyrada, have discovered a way to inhibit IRAK4, a protein widely regarded as the “master switch “in the development of many forms of chronic inflammation, including auto-immune diseases.
Not only could Noxopharm’s compound potentially help in the treatment of chronic inflammatory and auto-immune diseases such as rheumatoid arthritis, Crohn’s Disease, lupus and psoriasis, it also appears to be able to cross the blood-brain barrier and also enter the central nervous system, opening up the possibility of use in diseases such as Alzheimer’s Disease, Parkinson’s Disease, multiple sclerosis and motor neurone disease (MND).
Noxopharm is a highly prospective biotech story, but as usual, the caveat is that news flow and trial results will drive share price growth – and that any adverse results would detract from that.
4. Panoramic Resources (PAN:ASX)
Market capitalisation: $199 million
FY20 estimated yield: n/a
Analysts’ consensus target price: 65 cents (Thomson Reuters & FN Arena)
Rising commodity prices saw Panoramic Resources re-start last year the Savannah underground nickel sulphide mine in the east Kimberley region of Western Australia, which was mothballed in May 2016, after 12 years of operation. Panoramic decided to re-start the project in July last year, and signed a four-year offtake agreement with Chinese customer Sino Nickel. The first shipment of nickel-copper-cobalt concentrate in Savannah’s new life left the port of Wyndham in February this year, with a second shipment following in March.
The expected demand for electric vehicles and in particular, the lithium-ion battery – as well as a rebound in stainless-steel production in China – prompted the Savannah reboot. Provided that nickel prices (in particular) stay strong, the project should have a reasonably long mine life, with the mineral resource stated as 13.2 million tonnes at grades of 1.65% nickel, 0.75% copper and 0.11% cobalt, giving 218,300 tonnes of nickel metal, 99,100 tonnes of copper and 14,900 tonnes of cobalt. Panoramic recently cashed-up by raising almost $20 million through a combination of institutional share placement and share entitlement offer.
That is the good news. The less-welcome news is that there have been significant teething problems at Savannah, ranging from materials handling issues and problems at the paste plant, where tailings from the processing plant are mixed with cement and pumped back underground to fill up the voids, to difficulties securing skilled staff.
The project had a particularly poor February, but March delivered a much better mining and milling performance, giving investors greater confidence that the forecast mining and milling rates can be achieved. The forecast is for throughput of 60,000-65,000 tonnes of ore a month in the June 2019 quarter – this will be a crucial target. The shipment due at the end of April is expected to total 5,000 tonnes–8,000 tonnes of concentrate.
Investors may want to consider holding Panoramic to its target of opening up the higher-grade Savannah North orebody by the end of the year, so as to meet the target of bringing it into production early in 2020. As long as February’s problems are not repeated and Savannah North proceeds on schedule – and of course, given no unwelcome developments in commodity prices – it should be onward and upward for Panoramic Resources.
5. Perseus Mining (PRU:ASX)
Market capitalisation: $503 million
FY20 estimated yield: n/a
Analysts’ consensus target price: 60 cents (Thomson Reuters), 55.7 cents (FN Arena)
Perseus Mining is a West Africa gold mining specialist, having developed the Edikan gold mine in Ghana – which has produced about 200,000 ounces a year since 2012 – and the Sissingué mine in Ivory Coast, which started production in January 2018. Now it is moving on to its third project, having secured $US150 million ($211 million) to fund its Yaouré gold mine in Ivory Coast.
In the March 2019 quarter, Perseus produced 44,680 ounces from Edikan and 22,464 ounces of gold from Sissingué, for a total of 69,139 ounces of gold was poured during the quarter. So far in the FY19 year gold production amounts to 207,691 ounces, putting the company on track to achieve FY19 guidance of 271,000 ounces–291,000 ounces.
These are strong numbers from Edikan and Sissingué, and allow investors to view Perseus’ stated objective of producing 500,000 ounces of gold a year from 2022, an all-in site cost of less than US$850 an ounce, with reasonable confidence, assuming that Yaouré can be brought to production on schedule. According to the feasibility study, Yaouré is expected to produce an average of 215,000 ounces a year for the first five years, at an average all-in site cost of $US734 an ounce.
It should be stressed that Perseus is not currently profitable, and will probably post a loss for FY19, but that profitability should be achieved in FY20, with Yaouré coming into production in 2022. Therefore, investors should consider Perseus Mining as a relatively high-risk prospect, but against that, most observers would concede that on its track record, Perseus knows what it is doing in West African gold.
Recent work on the funding front appears to have Perseus well-positioned to fund Yaouré, as well as further exploration activities and other growth initiatives. Perseus’ cost position puts it slightly above the average level of the top producers – which is roughly about US$660 an ounce – but with gold trading above US$1,300 an ounce, this is not a huge problem: but clearly, the gold price needs to be watched by investors in gold-mining stocks.