There are a few small cap ASX shares that did really well in February 2021 for the NAOS Small Cap Opportunities Company Ltd (ASX: NSC) portfolio.
How does Naos Asset Management invest?
Naos is led by chief investment officer (CIO) Sebastian Evans. NAOS Small Cap Opportunities is one of the listed investment companies (LIC) operated by Naos.
That particular LIC looks at businesses with market capitalisations between $100 million and $1 billion.
The fund manager has a number of investment focuses. It looks for businesses that are good value with long term growth potential. With its portfolio, Naos believes it's better to have a quality portfolio rather than numerous holdings. That's why it only holds around 10 positions in each fund, with each ASX share representing a high-conviction position.
Naos invests in the small cap ASX shares for the long-term. It considers the performance and the liquidity of its positions whilst ignoring the index. Performance can sometimes be quite variable when compared to the index.
It looks to invest purely in industrial companies whilst also considering the ESG factors (environmental, social and governance).
Enero Group Ltd (ASX: EGG)
Enero is a collection of businesses relating to marketing and communications.
Naos said that Enero released the strongest result out of all of the businesses in its portfolio. Enero's net profit after tax went up 129% compared to the prior corresponding period. The earnings before interest, tax, depreciation and amortisation (EBITDA) increased to 30% and this helped increase the fully franked interim dividend to $0.105 per share.
The fund manager said that all of the small cap ASX share's public relations and creative agency businesses have shown significant earnings resilience as most of their client base operates within the technology, healthcare and government sectors which have continued to operate relatively normally in a COVID-19-affected environment.
The other main earnings driver was the 50.1% holding of ad-tech business OB Media, which is based in the US.
Naos believes OB Media is on track to earn over AU$22 million of EBITDA, compared to just a couple of million just a few years ago. OB Media has been investing in its technology and people, as well as building relationships with Google and Microsoft. The fund manager said that OB Media is now benefiting from this investment. On a standalone basis, Naos thinks OB Media is worth more than $300 million because it is a high growth technology business that makes a good amount of profit with a negative working capital balance.
COG Financial Services Ltd (ASX: COG)
This small cap ASX share is made up of two different businesses, an asset finance broking arm and a lending arm.
COG announced an initial half-year dividend. Naos said the ASX share's low capital intensity nature of the business has resulted in the business being in a strong net cash position with plenty of flexibility for both capital management and further acquisitions.
The company also provided further clarity about the imminent rollout of its insurance broking capability. The fund manager thinks insurance broking could match the earnings generated by the finance broking divisions when taking a three to five year view.
Big River Industries Ltd (ASX: BRI)
Big River is an integrated Australian timber products small cap ASX share. It's involved from the procurement of raw materials all the way to the sale of finished products to end users.
Naos said that said that Big River Industries' result was strong, with EBITDA growing by 15% and was not affected by COVID-19.
The fund manager pointed out that some new information was provided with the result that could more than double its current annualised net profit run rate of $6.2 million.
The acquisition of Timberwood remains on track with the company trading well and forecast to contribute close to $3 million net profit based on the current run rate.
Naos said the net cash inflow resulting from the closure of the Wagga Wagga facility and subsequent relocation to Grafton is expected to be around $10 million with net profit accretion of around $1.5 million.
The fund manager continues to see the economic backdrop being beneficial for the company which may further contribute to the growth in future earnings.
