The ASX small cap with the best global expansion potential may not be tech

The outrageous success of the Afterpay Ltd (ASX: APT) has investors scrambling to find the next emerging ASX stock with global potential.

| More on:
Best asx small cap stock global opportunity

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The outrageous success of the Afterpay Ltd (ASX: APT) has investors scrambling to find the next emerging ASX stock with global potential.

It turns out that the ASX small cap that holds the key may not be a sexy tech or fintech related start-up.

Morgan Stanley looked through its small cap universe of stocks and picked the City Chic Collective Ltd (ASX: CCX) share price as its preferred global expansion story.

The best ASX small cap global expansion opportunity

City Chic is a leading women's plus-size apparel retailer in Australia but the broker reckons the global revenue opportunity stands at around US$60 billion.

If that is the case, the CCX share price has a lot more room to grow after its recent acquisition of UK retailer Evans for around £23m.

The broker reckons City Chic is well placed to make further acquisitions to advance its global ambitions.

International M&A drives material earnings upgrade

While many takeovers don't tend to work, especially an ASX company buying an overseas asset, there are a few reasons for investors to be excited about CCX's expansion.

For one, it has an existing infrastructure including e-commerce platform and warehouse facilities. CCX also has a proven track record and experience from the Avenue acquisition and an extra $50 million in its war chest.

"We estimate 15-20% upside risk to our FY22E EPS [earnings per share], if CCX can deploy capital at the same returns as Evans," said Morgan Stanley.

"We also think CCX has demonstrated capital discipline in the past by walking away from the potential Catherine's deal."

CCX profit result could beat expectations

But there's another reason to buy the CCX share price besides its merger and acquisition (M&A) potential.

Morgan Stanley believes management will deliver a first half result this month that will beat market expectations.

The broker is forecasting 1HFY21 sales growth of 24%, which is well ahead of the 15% consensus estimate.

It seems COVID-19 hasn't been much of a drag for the retailer.

Outsized returns from this ASX small cap

Recent bullish trading updates from its peers has convinced Morgan Stanley that CCX will beat the street.

These peers include the Accent Group Ltd (ASX: AX1) share price, Premier Investments Limited (ASX: PMV) share price and Super Retail Group Ltd (ASX: SUL) share price.  

"Third-party web traffic data shows improving trends across all of CCX's websites," added the broker.

"We think CCX's dress business may take some time to return to pre COVID-19 levels, however, we think it has been able to offset this with an increase in casualwear."

Morgan Stanley has an "overweight" recommendation on the CCX share price with a 12-month price target of $4.50 a share.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited and Super Retail Group Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Accent Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

A woman's hand draws a stylised 'Top Ten' on a projected surface.
Share Gainers

Here are the top 10 ASX 200 shares today

ASX shares returned to positive territory this Tuesday.

Read more »

Multiple percentage signs in the palm of a man's hand.
Share Market News

ASX 200 lifts on the RBA's latest interest rate call

The ASX 200 is up 0.5% on the heels of the RBA’s interest rate announcement.

Read more »

Man drawing an upward line on a bar graph symbolising a rising share price.
Broker Notes

Macquarie tips 40% upside for this ASX 200 real estate stock

Let's see what the broker is saying about this stock.

Read more »

Woman sits at her desk working at night, while traffic flows on a busy freeway out the window behind her.
Broker Notes

Transurban shares: Buy, hold, sell? Here's Macquarie's recommendation

Macquarie’s analysts just ran their slide rules over Transurban shares. Here’s what they found.

Read more »

A woman sits at her home computer with baby on her lap, and the winning ticket in her hand.
Consumer Staples & Discretionary Shares

Which 'enduring high-quality business' has become a forgotten ASX 200 stock?

Fundie says this ASX 200 consumer discretionary stock has been flying under investors' radar.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Financial Shares

Want a financial stock outside the big 4 banks? Macquarie tips 15% upside for this small cap financial

For those searching on the edges, this name could be worth a second look according to Macquarie.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Kogan, Monash IVF, OFX, and ResMed shares are falling today

Why are these shares taking a tumble today? Let's find out.

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Share Gainers

Why Breville, Clarity, EOS, and TechnologyOne shares are racing higher today

These shares are having a strong session on Tuesday. But why?

Read more »