Key points
- Analysts have picked two exciting ASX growth shares with compelling potential
- ELMO Software is a HR tech company that is rapidly growing in Australia and the UK
- Pinnacle is a quality investment manager that is quickly growing FUM and expanding its portfolio overseas
The Australian Stock Exchange has a number of attractive ASX growth shares that have plenty of long-term growth potential.
Recent share market volatility has brought down the share prices of plenty of the ASX's star performers.
With that in mind, these are two businesses that analysts like:
ELMO Software Ltd (ASX: ELO)
ELMO is a leading provider of HR and payroll software for small and medium sized businesses in Australia and the UK.
The ELMO share price has fallen by 21% since 25 November 2021. However, the business continues to grow and is delivering strong double digit increases each reporting period.
For example, in the first quarter of FY22, ELMO revealed its annual recurring revenue (ARR) had reached $88.5 million – an increase of 61% year on year, which included 35% organic ARR growth. It achieved 52% growth of actual revenue to $20.7 million and 78% growth of cash receipts to $27.7 million.
Management points to multiple levers to continue high growth. Those are: segment expansion, module expansion and geographic expansion.
Currently its segments are the Breathe business for small businesses with less than 50 employees and ELMO software for the mid-market with 50 to 2,000 employees.
In terms of modules, the ASX growth share is growing the number of modules it offers to clients, making the client more valuable in terms of revenue and making ELMO more useful to clients. One of the newest modules is COVIDsecure, which can track things like vaccination and testing.
Morgan Stanley currently rates ELMO as a buy with a price target of $7.80 – that's almost 80% higher. However, a breakthrough for ELMO will be when being cashflow positive is clearer.
Pinnacle Investment Management Group Ltd (ASX: PNI)
Pinnacle is an investment business that takes strategic stakes in fund managers, which it calls affiliates, like Coolabah, Hyperion, Plato and Solaris.
One of the main benefits of Pinnacle's involvement for the affiliates is that it can take care of a number of administrative tasks like legal, compliance, product distribution and so on. The fund manager can focus on the investing.
This ASX growth share is seeing its total funds under management (FUM) managed by affiliates continue to grow through both organic net inflows as well as the occasional expansion of the portfolio. For example, it recently invested in Five V Capital, a private equity outfit.
In FY21 the business saw total affiliate FUM rise 52% to $89.4 billion, with total retail FUM growing 55% to $20.3 billion.
By October 2021, total FUM had risen to $90.9 billion, with retail FUM increasing to $23 billion.
On 23 November 2021, Pinnacle said it's expecting to deliver growth in FY22 with aggregate affiliate FUM (at the time) more than 30% higher than the average FUM in FY21.
It also revealed it's looking to take advantage of the significant offshore opportunity by evolving into a global multi-affiliate platform. Pinnacle has announced the establishment of its "first" North American affiliate. It will own 35% of this affiliate, which is a global and Canadian small cap equities fund manager in Canada.
It's currently rated as a buy by Ord Minnett with a price target of $17 – that's more than 30% higher than where it is today. The broker puts the Pinnacle share price at 26x FY23's estimated earnings.
