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Finding opportunities in small companies

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Finding opportunities in small companies

There are over 2,000 companies listed on the ASX and most of them are small caps presenting huge investment opportunities in ASX small cap stocks, but how do you know which ones to invest in? We look for exposure to high-quality businesses that exhibit considerable growth and will come out of the pandemic in a stronger competitive position.

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Gary is the Portfolio Manager of the Montgomery Small Companies Fund. Gary joined Montgomery in August 2019 after spending three years at MHOR Asset Management in Sydney as a Founder and Portfolio Manager. Prior to this, Gary was a Portfolio Manager at Renaissance Asset Manager in Sydney for six years. Before moving to Australia, Gary spent five years in London running Morgan Stanley’s Technology Sector Equity Research Team, as well as two years covering technology companies for JP Morgan.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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2 Comments

  1. Jay Boothman
    :

    Hi all,

    Another insightful presentation, thank you.
    I note Appen APN was missing from the presentation. The company delivered their full year 2020 result which fell short of market expectations, however weren’t appalling. Two questions;

    1. What do you make of Appen’s future prospects moving into a time when economies are reopening, employees are returning to work and in a low interest rates and potential/inevitable inflationary environment?

    2. Do you believe APX current price is consistent with the answers to the first question?

    Kind Regards,
    Jay

    • Jay. APX is not a name we own today. We have owned it in the past, and its a name we feel we know. Its obvious to say that the business has been having a few headwinds, as you noted spend from clients has been slowing, quite quickly, and you are right to point out that some of the slowdown is likely to be driven by transitory factors impacting client demand. But the market is concerned about competition as well as the likely demand profile from clients. AI is a great theme, and the market for algo training data has bloomed, and with it APX’s project based business model has captured significant deals from the industry’s big players. This rapid growth success caused investors to forget the non-recurring project based nature of the business model and revel in the strong growth. But when the growth slows the non-recurring nature of the revenue model is remembered, with consequences for the valuation regime. So optically the valuation retreat looks a lot (and it is) but the key question is will growth come back and what will be the valuation regime when it does. The rise of competition challenges the first point, and investors are now aware of the consequences from a rapid slowdown potential in APX’s project based business model, there is no or limited recurring revenue aspect to the business to buffer a headwind. Hope that helps. G

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