2 ASX small-cap shares I would buy and hold to 2030

I'm backing both of these picks to deliver very good returns over the rest of the decade.

| More on:
A little girl holds on to her piggy bank, giving it a really big hug.

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

Key points

  • Both of my picks have excellent international growth potential to help them grow in value substantially to 2030
  • Bailador has a portfolio of fast-growing tech names, and it’s trading at a deep discount to its underlying value
  • I’m backing Beacon to bounce back from a cyclical low in investor confidence, while also having a lot of potential in international markets

I think small-cap ASX shares can deliver the biggest returns because of where they are in their growth journey and the current share prices.

Higher interest rates seem to have hurt the valuations of the smaller end of the ASX compared to the biggest S&P/ASX 200 Index (ASX: XJO) shares.

I'm looking at the below two businesses as much-cheaper ideas which are delivering underlying operational growth that can help increase their value over time.

Beacon Lighting Group Ltd (ASX: BLX)

Beacon Lighting describes itself as a leading provider of lighting, fans and electrical accessories, servicing both retail and trade customers in Australia. It has several other specialty lighting brands addressing separate market segments in Australia.

Australian lighting demand may move up and down over time, but I think the current pessimism about the sector means it's a good time to look at it – the Beacon Lighting share price has dropped 37% this year. If it fell further I'd say it has even more room to bounce back when conditions normalise.

A key reason why I'm excited about the ASX small cap share is its international division where it's an "emerging wholesaler" of fan and lighting products with sales and support offices in Hong Kong, USA, Germany and China.

In the FY23 first-half result, Beacon's international sales in Europe and Hong Kong increased by 54.6% and 10.8% respectively. International US sales to US showrooms increased by 65.4%. There was sales growth of over 200% in the Tmall Global channel in China.

By 2030, the international division could be much bigger and I think this will drive the underlying value much higher as those international sales compound to much more meaningful numbers.

Bailador Technology Investments Ltd (ASX: BTI)

Bailador is a tech-investing company that looks to invest in private businesses that are growing quickly, have international revenue generation, a "huge" market opportunity and have the ability to generate repeat revenue.

The ASX small-cap share is currently invested in eight tech businesses including (in weighting order) Siteminder Ltd (ASX: SDR), InstantScripts, Rezdy, Access Telehealth and Rosterfy. These are all promising digital businesses that are demonstrating impressive revenue growth.

In the latest quarterly update, Siteminder said its revenue had grown by 28.7%. An update in March said that InstantScript's revenue was growing at 100% year over year.

According to Bailador, its shareholder return over the three years to May 2023, was 15.3% per annum.

At the current Bailador share price, it's valued at a 27% discount to the pre-tax net asset value (NAV) at May 2023. I think it's priced at a very good level for long-term outperformance, and investors can receive attractive dividends each year to 2030 with the company committed to paying a dividend yield of 4% of its pre-tax NTA. At the current NTA discount, that represents a fully franked dividend yield of 5.5%.

Motley Fool contributor Tristan Harrison has positions in Bailador Technology Investments. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Bailador Technology Investments and SiteMinder. The Motley Fool Australia has recommended Bailador Technology Investments. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Small Cap Shares

Two kids in superhero capes.
Small Cap Shares

Guess which 2 ASX small-cap shares just rocketed 50%+ on big news!

Investors are sending these two ASX small-cap stocks through the roof on Tuesday.

Read more »

A person with a round-mouthed expression clutches a device screen and looks shocked and surprised.
Small Cap Shares

Guess which small cap ASX share could rise 100%+

A leading broker is tipping big returns from this speculative stock.

Read more »

Rocket powering up and symbolising a rising share price.
Mergers & Acquisitions

Guess which ASX microcap stock just rocketed 67% on takeover news

Investors are sending the ASX microcap stock flying amid a takeover bid.

Read more »

A man wearing glasses and a white t-shirt pumps his fists in the air looking excited and happy about the rising OBX share price
Small Cap Shares

3 exciting small cap ASX shares to buy in November

These small caps come with big buy ratings from brokers. Let's see what they are saying.

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Small Cap Shares

This buy-rated small cap ASX stock has a 'strong underlying business with pricing power'

Bell Potter has good things to say about this buy-rated stock.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Small Cap Shares

3 small cap ASX shares to buy for massive returns

Analysts are tipping these buy-rated stocks to deliver the goods for investors over the next 12 months.

Read more »

A happy boy with his dad dabs like a hero while his father checks his phone.
Small Cap Shares

Buy these small cap ASX shares for big juicy returns

Analysts have good things to say about these buy-rated stocks.

Read more »

Two kids in superhero capes.
Small Cap Shares

2 small-cap ASX shares I think are great buys right now

These small stocks have big potential, in my opinion.

Read more »