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5 stocks under 75 cents

James Dunn looks for opportunity in small caps.

1. Sigma Healthcare (SIG, 54 cents)

Market capitalisation: $533 million
FY21 projected yield: no dividend expected
FY21 projected price/earnings ratio: 20 times earnings
Analysts’ consensus valuation: 68.5 cents (Thomson Reuters), 68 cents (FN Arena)

It has been a tough few years for Sigma Healthcare, but the company is on the rebound. Sigma is a wholesaler to pharmacies, and also operates a network of independent as well as franchised pharmacy stores, under the brands of Amcal, Discount Drug Stores (DDS), Guardian, PharmaSave, Chemist King, and more. Sigma says its brands capture more than 18% of consumer pharmacy spending.

This year, Sigma Healthcare resumed its former role as wholesale supplier of FMCG (fast moving consumer goods) products to Chemist Warehouse, on an initial-four-year deal, after the partners ended up in court over their previous arrangement. Sigma also has about 10% market share in national hospitals – where its sales grew by 22% in the first of FY21 – and is showing impressive growth in its expansion businesses, such as Contract Logistics, Medication Packaging Services (MPS) and its medical equipment/personal protective equipment business Medical Industries Australia (MIA).

First-half revenue was down 12.5%, at $1.6 billion, but with like-for-like sales growth across the pharmacy brands rose an impressive 9.5% and wholesale sales were up 15.1%. The company’s “Project Pivot” business efficiency program is doing great things and Sigma says it is on track to deliver $100 million in annualised benefits by the end of FY21.

Brokers are quite bullish on Sigma, particularly as the Chemist Warehouse contract ramps-up to full flow. Dividends are expected to resume in FY22.


2. QuickFee (QFE, 54 cents)

Market capitalisation: $103 million
FY21 projected yield: n/a
FY21 projected price/earnings ratio: not yet profitable
Analysts’ consensus valuation: n/a

Fintech QuickFee listed in July 2019, at 20 cents a share, raising $13.5 million. It’s a slightly different buy-now-pay-later (BNPL) offering – it calls its service “advice now, pay later,” because it focuses on professional services such as legal and accounting. Customers borrow money from QuickFee to pay their lawyer or accountant: the professional services firms pay QuickFee’s charges, thereby giving their clients access to an online payment plan and making it easier for clients of firms to access essential legal, accounting and financial advice.

The 2019 listing raised money to expand into the US – where QuickFee has been operating since 2016 – and that is where the growth will come for QuickFee, as the “advice now, pay later” model gains traction in a much bigger market. For example, in the September quarter, Quickfee said its US transaction were up 215% on the September 2019 quarter, with the value of transactions growing to US$127.2 million, up 213%. The company says the pandemic is accelerating the adoption of electronic invoices in the US, creating a major tailwind for QuickFee in terms of the number and value of transactions being processed on its platform, as well as providing opportunities for lending growth in the US.

In September, QuickFee struck a partnership with fellow ASX-listed fintech Splitit Payments (SPT) to launch a new interest-free service in the US and Australia to enable the clients of accounting and law firms to pay their fees via a credit card, using Splitit’s instalment solution, and then repay their fees over time.

(Splitit allows customers to pay with an existing credit or debit card, holding the full amount on their card and taking an instalment each month. The customer can apportion the total cost across as many interest-free payments as they like: the Splitit system charges their credit or debit card every month until their payment is completed. This means that Splitit does not finance the consumer into the purchase: it does not make short-term consumer loans.)

QuickFee says the partnership with Splitit increases its potential market in the US by 2,500%, and its Australian market by 560%. It says it allows professional services firms to give their clients the essential advice they need without worrying about clients’ capacity to pay. Where the Australian accounting market is estimated at $20 billion, QuickFee says the US market is US$111 billion ($159 billion); and where the Australian legal services market is a $21 billion market, its US counterpart is US$313 billion ($450 billion).

QuickFee has a first-mover advantage in the US and Australian professional services market – it is the potential of scaling-up its platform into the massive US markets that investors are backing from here on.


3. PTB Group (PTB, 67.5 cents)

Market capitalisation: $85 million
FY21 projected yield: 7.4%, fully franked (grossed-up, 10.6%)
FY21 projected price/earnings ratio: 11.2 times earnings
Analysts’ consensus valuation: 86 cents (Thomson Reuters), 86 cents (FN Arena)

PTB Group is a unique business exposure on the ASX, and often, they’re not well understood. The Brisbane-based company sells and services turbine aviation engines and plane components, and also provides spare parts – it claims to have one of the largest parts inventories in the Southern Hemisphere. In addition, PTB also generates income from short and long-term rental, leasing and finance of aircraft, turbine engines, and turbine engine components. This is a niche market with high barriers to entry, given the high level of specialist expertise required to provide these services.

PTB made a major growth step in January this year, buying independent US aircraft engine maintenance, repair and overhaul company Prime Turbines and an inventory of aviation spare parts from US provider CT Aerospace for $44 million, helped by a $34.9 million equity issue. These businesses give the company significant growth opportunities: in particular, Prime Turbines fits beautifully, as it conducts the same type of business as PTB, with a strong focus on the Pratt and Whitney PT6 series of engines. With this acquisition, PTB gained three US workshops, on top of its Brisbane workshop.

The integrated business model aims to provide multiple “touchpoints” over the lifecycle of an asset. PTB Group’s leasing division is the first touch into the life of an engine or airframe, the company then does maintenance, repair and overhaul (MRO) services and benefits from the sale of engines or spare parts, and at the end of the engine or airframe’s serviceable life, PTB Group again has the opportunity to remarket the asset as a whole, or sell the components.

Gaining access to the US aviation market – the largest in the world – is a game-changer for PTB, and will boost profits significantly. It’s a fully franked dividend payer, to boot.


4. PayGroup (PYG, 58 cents)

Market capitalisation: $39 million
FY21 projected yield: no dividend expected
FY21 projected price/earnings ratio: 18.5 times earnings
Analysts’ consensus valuation: $1.08 (Thomson Reuters) 

Listed in May 2018, at 50 cents a share, raising $8.5 million, Melbourne-based PayGroup provides business process outsourcing solutions for payroll-related tasks, cloud-based software-as-a-service (SaaS)/software-with-a-service (SwaS) human capital management software, and workforce management services. PayGroup operates mainly in the Asia-Pacific region and the Middle East, serving more than 400 clients with more than 31,000 client employees across 18 countries.

The company won $5.4 million in contracts for the first half of FY21, up 93% from a year ago, and equivalent to 98% of total contract value in FY20: 70% of the contract wins during the half came from Asia. Earlier this month, PayGroup secured a contract win with Volvo Group Singapore, valued at $120,000. This brings the possibility of opening up a new addressable market in the automotive industry.

There appears to be very strong underlying demand for the company’s SaaS and SwaS product suite across its Asia Pacific and Middle East markets, which is not only proving resilient to the pandemic, but flourishing as PYG’s clients look to outsource HR and payroll functions to drive efficiencies in their businesses. Mark this business down as another member of a growing group, the ASX’s SaaS stars.


5. NZME (NZM, 60.5 cents)

Market capitalisation: $116 million
FY21 projected yield: no dividend expected
FY21 projected price/earnings ratio: n/a
Analysts’ consensus valuation: n/a

New Zealand has grabbed a lot of attention since the landslide election result earlier this month that delivered Jacinda Ardern majority government, and NZME is picking up some of that attention, as the owner of a newspaper, radio and digital business portfolio in New Zealand.

In print, the company’s flagship New Zealand Herald remains the most-read newspaper in New Zealand, attracting an average issuer readership of 465,000 kiwis. Across the company’s 39 print publications throughout New Zealand, 1.3 million people read its papers each week. NZME also has nine radio brands, serving all key demographic groups, with 2million weekly listeners. Its national Newstalk ZB station is the number one commercial radio network. The company’s digital platform has 2.3 million digital users per month, and its OneRoof real estate site hosts 83% of residential for-sale listings in New Zealand, and 95% of residential for-sale listings in Auckland. There are 82,000 subscribers for the company’s premium digital offering.

The June half-year was a tough one, with COVID hurting all revenue streams, but the company moved quickly to cut costs, instituting NZ$25 million of cost removal, and (it says) an annual saving of NZ$25 million: that is fairly significant when you make NZ$6.8 million as half-year net profit. This profit more than doubled, largely thanks to the NZ government wage subsidy and lower operating expenses – that’s clearly not sustainable, but the company says the steps it has taken to restructure its business point to a profit and possible dividend in 2021.

Savvy Australian fund manager Forager is a holder, and described NZME in its September 2020 newsletter as: “At 5 times net profit, NZME is cheap for a growing, dividend-paying company. Success with the property classifieds website OneRoof offers even more upside.” At a 5 times multiple, the New Zealand economy does not have to shoot the lights out for NZME to recover further in price.


About the Author
James Dunn , Switzer Group

James Dunn is an author at Switzer Report, freelance finance journalist and media consultant. James was founding editor of Shares magazine, and formerly, the personal investment editor at The Australian. His first book, Share Investing for Dummies, was published by John Wiley & Co. in September 2002: a second edition was published in March 2007, and a third edition was published in April 2011. There have also been two editions of the mini-version, Getting Started in Shares for Dummies. James is also a regular finance commentator on Australian radio and television.