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Six disruptive stocks

By holding a basket of Small Caps that have disruptive potential you can be the beneficiary of some really big returns.

Just over 12 months ago Under the Radar Report came up with 3 disruptors, which have so far doubled the money of those brave enough to follow out advice. Let’s see if we can do it again.

Those disruptors were, the champion of the BNPL market, Afterpay (APT), which was $32 and is now over $101 a share. The hydrogen technology company Hazer (HZR) was 40 cents and is 64 cents at the time of writing, while the laboratory technology specialist LBT Innovations (LBT) hasn’t performed as well, but is solidly up 18%, having traded at 11 cents then and is now 13 cents now (it’s been as high as 22 cents).

Before I go into a little detail about why disruption most often occurs at the small end of town, I’ll go through our current candidates.

 

Investing beside titans with Tuas (TUA)

We picked Tuas for subscribers less than a month ago at 58 cents and it’s already up 30%, trading at 75.5 cents as I write. Guess what? We still like it!

The TPG spin-off is a newly established and disruptive entrant to Singapore’s mobile telco market. The stock offers an opportunity to invest along side the most successful operators in the space. The company is being run straight from the David & Vicki Teoh playbook, who control the company along with this long-time supporter, the Millner backed ASX listed investment vehicle Washington H Soul Pattinson.

We were pleased to see its shares rally after it reported its interim result for the period from 11 March (date of incorporation) to 4 September. It must be said that these are early days for Tuas’ business, but it is reassuring that it has managed to attract a decent number of initial subscribers without too much marketing expenditure. Its mobile network is expected to be complete within the current financial year (ending 31 July 2021) and more encouragingly, Tuas appears to have secured 5G spectrum on very attractive commercial terms. Its 5G network can be rolled out with little incremental cost, based on the brand-new 4G network that it recently constructed.

Radar Rating: Tuas has made a good start in its aim to carve out a niche in the Singapore mobile market, but a sharp share price spike since our recommendation suggests some caution is warranted.

 

Disrupting the friendly skies with Alliance Aviation (AQZ)

The company redirect assets to meet opportunities as they arise, and this is a tremendous strength in a business with fixed capital. Even if the reborn Virgin and Jetstar duke it out over the low cost domestic travel market as it recovers, Alliance is still in a position to generate substantial cash flow and retain flexibility to deliver benefits to shareholders over the medium term.

Alliance is probably the only airline in the world that has been profitable throughout 2020 and raising funds for expansion. The company increased its fleet by 35%, or 14 new Embraer aircraft and its available revenue passenger miles by a much higher rate, putting the company on the flight path for growth over the next couple of years.

We have always admired the company’s robust business model with revenue streams from four distinct sources, with the primary revenue being the long-term contracts with major resource clients. The company is a critical part of the just-in-time supply chain for resource majors. Alliance has always emphasised its “on time departure” performance because that is what motivates its clients. These long-term contracts are reliable revenues that permits a much lower capacity utilisation business model than most airlines. A wholly owned fleet is another element of Alliance’s flexibility. It remains to be seen how the introduction of new Embraer aircraft and changes in the market will change the dynamic; we note that Alliance has initiated passenger services in its own name.

RADAR RATING: Management has demonstrated its capability to build an attractive niche business while all around has been carnage. New capacity will allow the company to address new passenger markets with a solid backing from contract revenues from major clients.

 

Investing in AI with Volpara Health Technology (VHT)

Volpara is a med-tech disrupter, operating a software-as-a service business model that uses AI algorithms to improve the early detection of breast cancer by analysing breast images (mammograms) and associated patient data. It has integrated its breast screening technology with a software platform that incorporates patient tracking.

The NZ based company has a first mover advantage. While its competition has individual products and components, Volpara has a platform that enables it to screen, assess and track patients. This makes its integrated solution more powerful than fragmented product offerings.

The success of the company’s unique software has been demonstrated in its rapid uptake in the US and globally. At the end of March 2020, just over 27% of breast screenings in the US were using at least one of Volpara’s products. Its product suite now has established users in 38 countries.

Volpara is committed R&D, resulting in product launches. VolparaDensity 4.1 AI algorithm is due for release in coming weeks, which will further boost its sales momentum.

RADAR RATING: Volpara has transformative breast cancer screening technology with a unique integrated software platform. It’s generating sales momentum in the US market, benefiting from a new sales team.


About the Author
Richard Hemming , Under The Radar Report

Richard is an experienced finance analyst, stock broker and financial journalist, having worked for over 25 years in the finance sector. He has worked as an analyst and stockbroker in Sydney and in London and for the Australian Financial Review, Investors Chronicle and the Financial Times. He had always wanted to start a research newsletter focussed purely on Small Caps because they were simply not covered with any regularity by stockbrokers because they were too small. Small Caps require diligent research and follow up.  The lack of quality research on Small Caps was why Richard started Under the Radar Report with Caroline Mark.