Six small cap growth stocks under 60 cents

Alpha HPA (A4N, 52 cents)

Market capitalisation: $414 million

Profitable: No

Three-year total return: 56.8% a year

Analysts’ consensus price target: 92 cents (Thomson Reuters)

1 year stock price chart of Alpha HPA (A4N)

Source: nabtrade

 

In all of the excited coverage of new-age metals for batteries and renewable energy, the likes of lithium, graphite and cobalt grab most of the attention, but another potentially lucrative space is high-purity alumina (HPA), which is used in lithium-ion batteries for electric vehicles (EVs), micro-LED lighting and optical sensors, and semiconductor manufacturing, solar battery storage and consumer electronics, and synthetic sapphire which is used in watches and smartphone camera glass. All of these are high-technology items with rising consumer demand, particularly in China, North America and Europe. 

Alpha HPA has a proprietary solvent extraction and refining technology to produce HPA. It is building a new $300 million high-purity alumina industrial plant at Gladstone in Queensland: Stage One of this plant, which is fully funded, will commence commercial production from August 2022, supplying offtake agreements signed with Orica Australia and pre-commercial orders from a major European maker of sapphire glass. Stage Two, the full-scale project, will commence in parallel with Stage One and is scheduled to be commercially operating by 2024. Alpha HPA’s high-purity products and competitive unit costs have the potential to disrupt incumbent production methods and establish it as an integral part of supply chains at the forefront of the global decarbonisation theme.

 

Family Zone Cyber Safety (FZO, 36 cents)

Market capitalisation: $257 million

Profitable: No

Three-year total return: 22.5% a year

Analysts’ consensus price target: 85 cents (Thomson Reuters)

1 year stock price chart of Family Zone Cyber Safety (FXO)

Source: nabtrade

 

Tech company Family Zone Cyber Safety has a unique business, built around school and family cyber safety, and also parental control of online access for their children: FZO’s core technology allows time and access controls to be placed on selected devices, while leaving others open to access the internet freely. Family Zone’s unique innovation is its patented cyber safety ecosystem, a platform enabling a world-first collaboration between schools, parents and cyber-safety educators. In 2017 the company bought New Zealand-based Linewize, which had developed similar filtering technology, but its system processed data in the cloud rather than on a server, taking the pressure off the computing requirements of school systems. FZO incorporated Linewize technology its own and created a product that was easier for smaller schools to use. 

In 2021, FZO struck a second transformational deal, raising $146 million to buy a major competitor, UK online safety business Smoothwall. Not only did Smoothwall bring a comprehensive and complementary portfolio of digital safety products, it was also a global leader in the rapidly expanding cyber-safety segment of data analytics and monitoring. The deal greatly increased Family Zone’s global presence and scale, and the company is now a global leader on the field of online safety for K-12 (kindergarten to the end of secondary school) children. FZO also bought classroom cyber-safety tool Net Ref for $23 million in June 2021. 

The company says its progress over the past 18 months “provides a pathway to breakeven.” It operates in a highly competitive market globally, and like most tech companies FZO has to invest constantly in innovation to keep ahead. As it grows its revenue, talent, client and student base – especially in the key UK and US edutech markets – the breakthrough to profitability starts to become clearer for investors. The company’s stated purpose – “to protect and support every child’s digital journey” – hits a sweet-spot not only for all conscientious parents and teachers, but also ESG investors: the social impact is demonstrably good. FZO is very much a stock worth following. 

 

RightCrowd (RCW, 16 cents)

Market capitalisation: $42 million

Profitable: No

Three-year total return: 20.9% a year

Analysts’ consensus price target: 26 cents (Thomson Reuters, FN Arena) 

1 year stock price chart of RightCrowd (RCW)

Source: nabtrade

 

Established in 2004, RightCrowd is a global provider of safety, security and compliance solutions that manage the access and presence of people. In simple terms, RightCrowd’s product combines a person's identity, their status (health, training, drug test results, etc.) and their IT/HR information together with a physical security system to enforce whether an individual is authorised to be in a specific location. A lot of other products can do some of these things, but RightCrowd’s unique selling proposition (USP) is that it combines it all, in a software-as-a-service (SaaS) product.

The company’s numbers are small, but heading in the right direction: in the recent half-year to December 2021, sales revenue rose by 11%, to $7.7 million, with total annual recurring revenue up 50%, at $9.1 million. Similar to Family Zone Cyber Safety, RightCrowd is focusing its efforts on “broader commercialisation and progress towards breakeven.” It is paying particular attention to boosting its presence in the US and EMEA (Europe, the Middle East and Africa) markets. RightCrowd has offices in the US, Belgium, the Philippines and Australia.

For the full-year to June 2022, RightCrowd says its targets are to:

• Reach $19.8 million in revenue, which would represent growth of 30.3%;
• Reach $11.5 million in annual recurring revenue (ARR), which would represent growth of 43%; and 
• With the combination of a stable cost base and revenue growth, decrease its net loss by 32%, to about $3.2 million.

RightCrowd might be small but I think it’s a highly promising tech stock. 

 

Xref (XF1, 56 cents) 

Market capitalisation: $104 million

Profitable: Yes

Three-year total return: 6.8% a year

Analysts’ consensus price target: n/a 

1 year stock price chart of Xref (XF1)

Source: nabtrade

 

Human resources technology company Xref is a cloud-based reference-checking platform founded by recruitment specialist Lee-Martin Seymour in 2009, as a result of his frustration with the slow and lengthy reference-checking process, involving phone calls and spreadsheets. Using the Xref platform, a human resources professional can request an applicant’s reference check in under half an hour and the automated system produces it. The software enables a platform for the customer to upload an applicant’s details; the applicant then logs-on and uploads the details of their referees. Those referees then log on and answer template or customised questionnaires, the results of which are collated and provided to the customer in a brief report. As well as reference checking, the platform also provides ID and background verification, fraud detection, data security and sentiment analytics and insight, reference templates, talent sourcing, and security/compliance.

In November 2019, Xref launched a product called Xref Lite, which allows a single user to use the platform with no integrations or customisations: this was designed as both a quick product for small businesses, but it also allows larger businesses to try the platform. 2019 also saw the company buy RapidID, a real-time identity verification and fraud prevention platform that combines leading customer verification technologies for onboarding and risk analysis monitoring. The company says integrating RapidID into Xref enables customers to verify the authenticity of global ID documents and then match them to the holder’s biometric data, in real time.

The recent half-year to December 2021 was pretty impressive, featuring:

• Gross Sales – a record first half period of upfront sales of $10 million, up 95%;
• Cash receipts from sales of $10.3 million, up 65% 
• Record first-half revenue result of $8.9 million, up 73%
• Net loss for the half year of $30,000 – a 98% reduction from the $1.98 million loss a year ago;
• Operating cash surplus of $2.3 million, compared to an operating cash deficit of $500,000 a year ago; and
• Cash balance of $10.4 million at 31 December 2021, compared to $8.1 million at 30 June 2021.

The one sore point is that 85% of sales still come from Australia and New Zealand. But I’m prepared to back Xref to lift its overseas sales quite significantly over the next few years. 

 

Doctor Care Anywhere (DOC, 30.5 cents)

Market capitalisation: $101 million

Profitable: No

Three-year total return: n/a

Analysts’ consensus price target: $1.265 (Thomson Reuters) 

1 year stock price chart of Doctor Care Anywhere (DOC)

Source: nabtrade

 

DOC is a UK-based company working in the burgeoning field of telehealth, which was already appealing to healthcare providers before COVID-19, but was turbo-charged by the pandemic. Telehealth allows healthcare providers to provide high-quality, timely and efficient primary and secondary care to patients, while reducing the overall cost of providing these clinical services: the company calls it “private virtual healthcare.”

DOC was listed on the ASX in December 2020, but operates in the UK, where it is one of the largest virtual care providers. The company has built a technology platform and recruited its own clinicians, to bring together primary care and secondary care, by offering:

Virtual GP Consultations in the form of video or phone consultations with GPs directly employed by DOC (an example of primary care); and 

Diagnostic referrals and specialist reviews across the major clinical specialties (an example of secondary care). 

These are both underpinned by DOC’s cloud-based health patient record. This integration of primary and secondary care, enabled by technology, delivers substantial benefits to patients and clinicians, but also to the third-parties that pay for healthcare, such as private health insurers and government health departments. DOC’s business model is to use its technology platform to provide what it calls “joined-up care” across the patient journey. 

How this works is that firstly, a patient enters DOC’s treatment pathway through a virtual consultation with one of the company’s GPs. Guided by clinical decision support tools, the GP may organise diagnostic tests through a national network of diagnostic centres, specialist consultant reviews of the results, and provide ongoing clinical management. This may include, where clinically appropriate, facilitating specialist care and intervention. DOC works with its major partners – its largest is AXA PPP in the UK, which sends it guaranteed minimum volumes, for which it is paid £45 per consultation. The company also earns a revenue stream from referrals to pathology, diagnostic imaging and other specialist medical referrals. Healthcare payers such as AXA PPP have a profit incentive to drive increasing volume to DOC, because DOC can cut AXA’s costs.

The company makes 90% of its revenue in the UK. It says it will establish an Australian arm, although this is yet to happen. The company has told the ASX that it expects its FY22 (calendar-year) revenue to be between £35 million–£38 million (A$66 million-71 million), representing 40%-50% growth above FY21, and that it expects to reach run-rate EBITDA (earnings before interest, tax, depreciation and amortisation) profitability by the end of the first half of FY23.

Telehealth is a huge growth market, and DOC appears to be very well-positioned in the UK – but it does need to show investors that it can expand successfully into other markets. The only share price target in the market comes from sponsoring broker Bell Potter, which is looking for DOC to reach $1.265.

 

BCI Minerals (BCI, 36.5 cents)

Market capitalisation: $440 million

Profitable: Yes

Three-year total return: 32.5% a year

Analysts’ consensus price target: 67 cents (Thomson Reuters) 

1 year stock price chart of BCI Minerals (BCI.ASX)

Source: nabtrade

 

The former BC Iron – which was obviously focused on iron ore – is now called BCI Minerals, because it is now committed to its wholly owned Mardie Salt and sulphate of potash (SOP) fertiliser project, located on the Pilbara coast of Western Australia. Mardie is a Tier 1 global project, aiming to produce 5.35 million tonnes a year of high-purity salt (about 99.5% sodium chloride) and 140,000 tonnes a year of sulphate of potash (SOP), at about 52% potassium oxide, through solar evaporation of seawater, over an initially estimated mine-life of 60 years. Using an inexhaustible seawater resource and a production process driven mainly by natural solar and wind energy, Mardie is a sustainable opportunity to supply the salt and potash growth markets in Asia over many decades. The $1.2 billion Mardie project is the first major salt development in WA in more than 20 years.

Construction got under way at Mardie last month. Mardie will ultimately include a 100sqkm evaporation pond and crystalliser system, two processing plants and a new export facility, featuring a 2.4-kilometre-long jetty. The company’s immediate aim is to complete construction of Pond 1 and fill it with seawater within six months, with first salt sales expected in late 2024. Mardie is expected to generate annual EBITDA of about $260 million, courtesy of bottom-quartile (lowest 25% of comparable projects) operating costs of about $21.50 a tonne of salt and $337 a tonne of SOP. SOP is a premium fertiliser used for high-value and chloride-intolerant crops: while most of the bulk crops, such as wheat, oats, barley and rice, can tolerate the chloride, other crops – for example, fruits, grapes, vegetables and nuts, cannot. As it happens, these crops are the higher-value crops that are burgeoning in Australia’s agriculture and horticulture industries and the country’s high-end food industry. BCI expects global demand for SOP to grow by about 20% between now and 2035: its major target markets are China, Japan, Oceania, the USA and South-East Asia. 

Although BCI no longer produces iron ore itself, it still receives quarterly royalty earnings from Iron Valley, an iron ore mine located in the Central Pilbara region, which is operated by diversified miner Mineral Resources Limited (ASX: MIN). In the December 2021 half-year, Iron Valley royalty earnings were down 20%, to $13.6 million. That gave BCI group EBITDA of negative $2.9 million and a net loss of $5.5 million for the half year. The company ended the period with a cash balance of $334.1 million and zero net debt. But Mardie is by far the main story here. It is being funded through $740 million debt and a $460 million equity contribution from BCI (for which it raised $360 million in November), and contributions from major shareholders, including superannuation megafund AustralianSuper. BCI Minerals looks to be very well-positioned in this growing market, and looks attractive buying. 

  

 

All prices and analysis at 07 March 2022. This information was produced by Switzer Financial Group Pty Ltd (ABN 24 112 294 649), which is an Australian Financial Services Licensee (Licence No. 286 531This material is intended to provide general advice only. It has been prepared without having regard to or taking into account any particular investor’s objectives, financial situation and/or needs. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. This article does not reflect the views of WealthHub Securities Limited.