On Tuesday Pinnacle Investment Management Group Ltd (ASX: PNI) held its Pinnacle 2020 Virtual Summit, with a number of leading fund managers sharing their views on the small cap sector.
Four small cap ASX shares that were picked out by fund managers are listed below. Here's why they are positive on them:
A2B Australia Ltd (ASX: A2B)
The Portfolio Manager of Spheria Asset Management, Marcus Burns, is a fan of A2B Australia. He doesn't believe the company, formerly known as Cabcharge, is being disrupted by UBER and DiDi as much as people think.
Burns commented: "Many people think that they've been disrupted by ridesharing apps like DiDi and Uber but the data shows this hasn't actually affected the amount of cab rides, while A2B is also becoming a leading technology player in the payments space."
In addition to this, the fund manager believes A2B Australia's shares are very cheap, particularly given its evolution into a technology company. He added: "The long term rate of cash conversion at A2B has been 84% which is a good conversion rate. If you look at the balance sheet it has net cash of around $24m and trades on an EV of three to four times. It's a very cheap business, with good cashflows that is essentially becoming a technology stock."
Aroa Biosurgery Ltd (ASX: ARX)
Firetrail Portfolio Manager, Matthew Fist, believes this New Zealand-based soft tissue regeneration company could be a top option for investors. Mr Fist has a high conviction view on its technology and medium term earnings potential.
He commented: "Incredibly Aroa's product itself is manufactured from the fourth stomach of a sheep. The digestion system of any animal that has four stomachs is unique and consequently products that are derived from them are too. Our conversations with surgeons and a review of the scientific evidence confirm the superior technology of the Aroa products. Aroa offers its products at comparatively low prices to its peers and generates gross margins in excess of 75%"
Gold Road Resources Ltd (ASX: GOR)
Mr Fist is also positive on this gold miner due to its high quality ore body. He believes that it is a materially undervalued option in a sector filled with stretched valuations.
He commented: "Gold is one of the hottest sectors in the market right now, valuations across the board are stretched, however there are opportunities. Based on some bottom-up work we've undertaken on the Gold Road plant… we expect processing capacity to increase to ten million tonnes over the next two years, some 30 per cent. Gold Road is a long-life, low-cost and materially undervalued company and it is materially misunderstood by the market."
Monadelphous Group Limited (ASX: MND)
Finally, Spheria's Marcus Burns also believes that this engineering and maintenance company would be a top pick for investors. It appears to be the maintenance side of the business which gets the fund manager most excited. This business has been growing strongly in recent years and now accounts for almost two-thirds of its earnings.
Burns said: "What's important about this company is that it has two divisions, one is an engineering division where it builds something once-off, the second is a maintenance division."
He added: "This stock trades on around 11x EBIT, it has around $200m of cash on the balance sheet and we think it presents incredibly good value especially now that the business mix has improved over time."
