small cap – Crouching Tiger Hidden Gems

Here’s why an investment in Smartpay Holdings Ltd (ASX:SMP) could be a smart move

Smartpay Holdings Ltd (ASX:SMP) renewed push into the Australian market is a make or break move for this promising small company.

So who is Smartpay Holdings Ltd (ASX:SMP) and what do they do?

Smartpay Holdings Limited SMP (ASX) designs, develops and implements innovative Point-of-Sale (PoS) payment solutions for customers in Australia and New Zealand including banks, retailers and merchant businesses.

Wait on Poindexter, layman’s terms please!!!

You know when you buy something from a shop, you need to tap your credit card on a little box next to the register to pay?

Yes

Well they own the little boxes and the associated software.

Boring….. Zzzzzzzzzzzzzzzzz

Hang on! Think about how many times buyers tap and go everyday across Australia and how many millions of dollars are being transferred.

Hmmmm so they get all that revenue?

Not quite. Let me explain. In New Zealand where they originated they own around 30% of all terminals and charge vendors a monthly fee to use the terminal. They have recently raised capital for a serious push at rolling out their terminals in Australia were they are able to charge a fee on all transactions processed, currently between 1-2% of the total transaction.

Hmmmmm. So I’m guessing if they can get a foothold into the Australian market they could end up a nice little money spinner

Very true, it’s a big opportunity for the company, but let’s not kid ourselves it won’t be easy.

Why?

For starters the market is currently dominated by the big four banks.

I knew there had to be a catch. So how can Smartpay possibly compete with the big four?

Good question. I recently attended the ASX small cap conference in Sydney and was able to speak with the managing director and I asked him the exact same question. What Smartpay offers, that others don’t, is built in software that allows shop owners to run reports and link into stock management software. They are also partnering with these software packages to offer Smartpay as an option. In Australia they are able to compete on transaction fees with the banks, offering vendors a better deal. Another interesting point is that they have just inked a deal to be able to accept Alipay on all their terminals. You will also be interested to learn that unlike many small cap stocks they are actually turning a profit from their New Zealand operations.

You know you really should attend these events

I’m far too busy

Did I mention the ASX offers free food and drinks at these seminars?

I’m so there

Now before you rush off to invest in Smartpay or any company for that matter, I suggest you start by doing your own research and discussing your decision with a qualified financial advisor.

I have included a link here of Smartpay’s presentation taken from the ASX small cap conference and their 2016 presentation here to kick start your research.

Do you have an opinion on Smartpay ?

I would love to hear it!!
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Disclosure and warning
Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.

At the time of publication Alonzo owned shares in Smartpay. Price at time of publication 20.5 cents.

Why I think iSignthis Ltd (ASX:ISX) could be something out of the box

A 267% jump in quarterly revenue may just be the beginning for iSignthis Ltd (ASX:ISX) in its quest to lead the world in KYC solutions

Fast growing small caps such as iSignthis Ltd (ASX: ISX) are often trying to disrupt the way a current process is done. While their method may well be better than current practise, there is no certainty it will be taken up by the targeted industry. Inertia is a very powerful force.

iSignthis Ltd ISX (ASX) first came to my attention when I read its latest quarterly cash flow report. As you can see below the large jump in revenue from previous quarters is the stand out feature. As I wrote here revenue growth is not the only thing to look for but it does highlight if the company’s product is gaining traction.
From the 4C, it appears that for the last month of the quarter, iSignthis may have actually been cashflow positive, a big achievement for any small cap.

Source: iSignthis 4C report

The question you must be asking yourself by now is what does iSignthis do, and why such a weird name?

To be honest the first time I heard its name I was a bit turned off, but it aptly describes what iSignthis does. Rather than me struggling to describe what they do I suggest watching their clip below.

Now that you understand what iSignthis does, lets take a look at its CEO and his background. This interview was done after iSignthis came onto the ASX back in 2015.

Conclusion

I won’t sugarcoat this, iSignthis operates in a very competitive market. Regtech is one of the fastest growing tech sectors and for a very good reason. When you think about how many transactions are processed around the world everyday, you can start to understand the prize on offer.

I have included a list here of regtech companies that you may like to investigate. While they do not all operate in the same space as iSignthis, it gives you an idea on the scope of the sector.

Do you have an opinion on ISX ?

I would love to hear it!!

Please join me and over 600 members on our investing forum. Just click here.

Disclosure and warning.

Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.

At the time of publication Alonzo owned shares in iSighthis. Price at time of publication 15.5 cents.

GetSwift AGM 2017, Can it really conquer the world?

2017 has been a pivotal year for GetSwift (GSW:ASX) with management believing the best is yet to come for this small Australia tech company.

Let me kick off my thoughts on GetSwift Ltd (ASX: GSW) Annual General Meeting by saying that if you’re looking for an executive chairman who can sell a story, look no further than GetSwift’s Bane Hunter. If he’s doing as good a job on prospective clients as he did on the attendees at its AGM then the company is in safe hands.

I joked on the CTHGPRO forums if I was in a church at the end of Bane’s sermon, I would have jumped to my feet and yelled “hallelujah brother”!

Now don’t get me wrong. I am not knocking Bane’s ability, in fact from what I can gauge, he’s a prized asset and for a company that boasts zero marketing staff, he seamlessly steps into that role.

So what did I learn at the AGM?

Firstly I was happy to see Bane kicking off proceedings by addressing a question many investors have regarding GetSwift.

Why would a company pay GetSwift Ltd when they could build it themselves ?

Let me start by saying if you hear an analyst ask this question, withdraw your money from their care and run not walk, as far away as you can. Why? because they obviously have zero real world experience.

Having worked in various companies across various industries, implementing company-wide software is far from easy. It takes considerable time and money. I am yet to see any large implementation go smoothly with many mistakes and miscalculations along the way. So when GeySwift comes knocking and says it will take on these risks and you only need to pay as you go, well-travelled CEOs and CFOs are definitely sitting up and listening.

Another key difference over an in-house approach is the intelligence gathered by GetSwift operating across different sectors and countries, which the team at GSW were keen to point out is funneled back into software improvements.

Next came the presentation slides which can be found here

I will let you make your own mind up about the presentation. The key takeaway in my opinion and a point that was made a few times by management at the AGM is that GetSwift is now being sought out by Fortune 1000 companies in the US as word-of-mouth spreads.

Question time

Before I go any further, I would encourage all shareholders to attend AGMs and to ask questions. Too many times I have attended AGMs and I’m the only one left to ask questions.

I kicked off question time by asking for specific examples of how GetSwift had improved its software over the last 12 months from intelligence gathered ?

To be honest, I am not sure my question was addressed completely. You know when someone says that’s a good question, they are trying to think of an answer. Without giving specifics examples, management answered that they had learned how different industries operated and offered new functionality in its software.

The next question that came from the audience and asked how the NA Williams project was progressing?

While the company was limited at what they could say in regards to market sensitive comments, they indicated the project was on track and an announcement about the progress would be made early in the new year.

The next question came back to me and I asked if they could explain the 1 billion transactions (NA Williams) as I was struggling to understand where those numbers came from?

I was pleased to learn the 1 billion figure actually came from NA Williams itself when they engaged GetSwift. Both the chairman and managing director admitted they also doubted those figures when they first heard them. This led to them spending sometime in the US with NA Williams at their delivery sites and on delivery trucks to get a better grasp of how many transactions would be involved across all divisions of NA Williams.

The next question was around small companies vs larger deals and where that was headed?

At the moment around 60% of transactions are from smaller companies but as deals are signed and come on line Getswift was expecting it to end up 80/20 to larger implementations.

The final question and perhaps the most telling was one asked about the current trading halt and the announcement of a “significant deal”.

The chairman said that while he was unable to give any specifics until it was released to market (tomorrow) he joked many readers of the announcement would experience a jaw dropping moment.

The AGM concluded with an update that a number of key appointments would be announced shortly from well known international companies. GetSwift management believes this validates their faith in the company.

Conclusion

I have written a few times that I like to keep my distance from company management so I do not fall under the spell of a great storyteller.

Having said that I was happy to see management was prepared to address the questions that the market has for such a young company. As a shareholder of GSW I look forward to finding myself nursing a sore jaw around 10am tomorrow morning but my 20 odd years in the market has me very skeptical indeed.

Do you have an opinion on GetSwift?

I would love to hear it!!

Please join me on my new forum. Just click here.

Disclosure:
Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.

2 small caps I recently purchased after their half yearly reports

Small ASX companies have fallen out of favour over the last 6 months. This short term pain has presented some compelling opportunities.

As many of you may know I am not adverse to stealing ideas from famous investors. If it is not broken why fix it, right? With this in mind as I approach any new investment in the small cap space I always remind myself of Peter Lynch’s famous quote “share price will always follow earnings and cash flow“.

For any new small investors reading this article if there is nothing else you learn from the rubbish I write, earnings and cash flow are the most important to keep in mind. While it might seem obvious, many investors get caught up in the “hype” of a company and end up losing money in businesses that are highly unlikely to ever produce any meaningful revenue let alone profits.

As I wrote in my previous article here you can monitor how a company is travelling via their Appendix 4C reports. This way you can project when a company should turn cash flow positive. You may even like to start building a stake just before this occurs because as you can imagine once this happens many investors will soon become interested.

An approach I will sometimes take is to start with a 20% holding of what my final position maybe in anticipation of the company turning cash flow positive. Once it occurs I will reassess the business and add the remaining stake if I am satisfied everything remains on track. ( example: If I wanted to invest $20K total in company X my first order would be for $4K or 20%)

I should add here that I will only enter a pre cash flow positive position (tongue twister) when I am extremely confident in the company. Most times I prefer to wait for confirmation via a half yearly financial report.

I know what you are thinking, enough of the lecture just get onto the 2 companies you pushed in the headline.

EML PAYMENTS LTD (ASX:EML)

EML Payments Limited is a financial services company, specialising in prepaid stored value products.

EML offers prepaid debit card programs for commercial entities, corporations and government departments. Presently EML manages over 850 programs in 13 countries including Austria, Australia, Belgium, France, Germany, Italy, Ireland, Netherlands, Portugal, Spain, United Kingdom, Canada and the United States of America.

What I like

EML’s recent report is the strongest so far delivered, driven by growth in Australia, Europe and North America. This report is also the first one with a full contribution from its North American acquisition.

Importantly all key operating metrics, including Total Value of Dollar Loads, Active Accounts and Stored Balances have grown strongly. In simple terms EML generates its revenue from transaction fees, processing fees, load fees, interchange and breakage on non-reloadable cards. (EML retains any unused value non-reloadable cards). Another source of income is interest on stored balances, so as interest rates around the world return to more normal levels EML is set to benefit.

RXP Services Ltd (ASX:RXP)

RXP Services Limited is an ICT and digital professional services company, providing consulting and professional services to a number of S&P/ASX 200 corporations and government bodies in Australia and in Asia.

What I like

After losing its way a few years ago RXP appears to have regained it mojo along with the formula to not only grow client numbers but also to retain them.

RXP’s report in my opinion was extremely encouraging. Despite the negative response from the market I was happy to start a position in a company which is trading at an undemanding valuation when compared to its larger more well known rivals.

What was extremely pleasing to see (and should help to restore market trust) was the fact RXP reconfirmed guidance at the upper end of previously announced, along with the company being financially capable of pursuing future acquisitions.

Do you have an opinion on either or both stocks? I would love to hear it!

Please join me on my new forum. Just click here.

Disclosure:

Here’s where I start my search for the next big small cap

Investors are always on the outlook for the next big thing. This is where I start my search.

Every minute of every day, investors dream of finding the next big thing. A small cap company which will grow rapidly over coming years resulting in the company’s share price doubling many times over.

If you are like me you will have listened enviously as other investors recount stories of buying Westfield Corp Ltd (ASX:WFD) or Commonwealth Bank of Australia (ASX:CBA) at some ridiculous price when they first hit the market.

While some investors like to buy in at the initial public offering, in the belief that the prospectus is a true reflection of the company’s future. I prefer to see runs on the board before investing.

Appendix 4C

To this end I eagerly await the mandatory quarterly reporting period for small companies. These reports known as Appendix 4C can be found on the ASX website at the end of each quarter.

In summary the report indicates the sales made in the quarter the costs incurred along with the remaining cash balance.

New investors will most likely be overwhelmed by the number of 4C reports released at the end of each quarter. To separate the wheat from the chaff at this stage I suggest only looking at companies which are actually producing revenue.

You will find this in the very top corner of the report. This will exclude most of the small cap exploration companies making the task much easier.

Next only consider companies which have grown revenue over the previous quarter. I recently learned that legendary investor Peter Lynch excluded companies whose revenue had grown by over 25% but I prefer to keep these companies under watch.

Once these companies have been found I suggest looking at the their quarterly activities report which is usually released with the 4C. While the 4C has a standard format, activity reports come in all shapes and sizes.

It is important for new investors to realize the activity report can be very much a marketing exercise but investors can quickly learn from this report the business conducted by the company. From here they can start to decide if they are able to understand what the company does and in turn possible risks etc.

Now that I have a list of growing companies running a business I can understand, I start to review past 4C reports.

Here I am looking to understand if revenue has been growing steadily or the recent report was a one off. Here I can also quickly learn if costs are continuing to rise or are they starting to level off which should see a growing cash balance. (positive cash flow)

From the 4C, remaining cash balance (found at the very bottom) will also alert you to how soon the company may need to raise capital from the market.

Conclusion

While there are never any sure things, I have been able to locate many profitable companies by this process including most recently Paragon Care Ltd. (ASX:PGC) and Nanosonics Ltd. (ASX:NAN) .

I suggest to new investors that this should be only the beginning of your research on a particularly company. From here you may check out the companies website. read annual reports and start looking for any broker coverage to help your understanding of what makes the company tick.

Paragon Care Ltd. (ASX:PGC) can this small cap grow into a blue chip?

It has been an extraordinary couple of years for this small health care company but can it keep going?

Source: https://www.google.com/finance

About Paragon Care

Over the past few years Paragon Care has progressively acquired businesses in the healthcare sector to become a leading provider of medical equipment, devices and consumables for the Australian and New Zealand healthcare market.

Paragon has targeted high growth markets driven by Australia’s ageing population, rising consumer expectations and increasing government spending.

Paragon operates in a highly fragmented industry, characterised by a high proportion of smaller, privately owned businesses which has allowed it to acquire 13 businesses over the last 7 years at so far reasonable prices.

Paragon aims to differentiate itself from other suppliers by increasing scale aims to significantly reduce the administrative burden experienced by hospitals and other health care providers when procuring items.

Paragons latest results

paragon-results

Latest Trading Update

paragon-tradoing-update

Conclusion

Simple extrapolation of the last 9 months and inclusion of the latest trading update for the full financial year has Paragon sitting on a PE or approximately 13.25 which in my opinion is hardly demanding for a company in a growing market such as health care. There has been concern around changes the medicare subsidizes but any impact will have less an effect on providers of consumable as compared to imaging providers.

So far shareholders have benefited from sensible acquisitions as most investors know roll up companies are only as good as the companies they buy and the price they pay. While Paragon has done well so far that does not guarantee the same will happen in the future and as such investors need to watch and assess each new acquisition carefully.

Tips for New Investors

Small companies embarking on roll up strategies can make great investments if you get in early and they get their acquisitions right . I have learned to be wary of companies that try to expand too quickly and take on too much debt which can cause problems if economic or market conditions impact on their cash flow and intern their ability to service the debt.

Trump Triumphs

Wow what a day and what a week.

The man no one thought would become President of the United States of America has done just that.

As the shock waves still vibrate around the world the question for investors is what does this mean to them and how should they invest a Donald Trump presidency?

If you had asked me this question last week I would have said go short equities and buy gold but since Donald Trump has been elected his whole approach has changed completely.

It began with his gracious acceptance speech where he thanked Hillary for her years of service yes that’s the very same Hillary just a few weeks earlier he had said he would send to jail if elected. He then went on to outline his idea of spending big in infrastructure to stimulate growth and get middle class Americans back to work.

The policy of huge tariffs had apparently disappeared and the market was liking the change with the ASX down 5% at one stage to bounce back to over 3% the next day.

While I must admit I do not know if this new approach will last I have been calling for expenditure on infrastructure in both Australia and the US to help economic growth as rate cuts begin to lose their affects.

While I am not convinced President Trump will follow through with these new promises as an investors I can only invest on what I know, and so far Trump is making the right noises.

Tip or New Investors.

While it is tempting to guess which way the market will head with a Trump victory, I have learnt that even the most highly paid analysts are wrong about the future more often than they are right. It is human nature to try to foretell the future but it is better to base your investing on facts and sound economic principles.

Disclosure:

Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.