A bunch of enthusiastic investors gathered in Sydney yesterday for the first Coffee Microcap Conference organised by Founder Mark Tobin.
The event opened with Andrew Smith from Perrenial Management, who’s Microcrap Opportunities trust has returned 24.6% p.a since inception at the end of March 2019.
Smith explained they focus on what stocks are NOT covered by analysts, as this is where the inefficiencies in the market lie. He looks for companies with no debt, “as banks are brutal at this end of the market” and he tries to work out whether he can trust management.
The Microcap Opportunities portfolio holds microcaps with an average PE ratio of 10.6x and an average EV/EBIT ratio of 6.9x. Click here to learn what EBITDA means.
ASX Microcap Presentations
The event had representatives from 12 microcap companies from all over the country to present to the audience, which was a great opportunity for smaller and non-professional investors to access company management and ask questions.
Hidden Gems
While most of the companies are probably not known, there may be some true ‘hidden gems’. For example, CEO Dr Ralph Highnam from Volpara Health Technologies Ltd (ASX: VHT) explained how Volpara is a medical technology company providing SaaS (Software as a Service) by using artificial intelligence imaging algorithms to assist in the early detection of breast cancer.
While many people would shudder at the thought of investing in timber, as they recall the collapse of Gunns Ltd in 2013, Kangaroo Island Plantation Timbers Ltd (ASX: KPT) Managing Director John Sergeant said they consider themselves to be the Steven Bradbury of timber in Australia.
Mr Sergeant explained that while they are a resource company, they are different from traditional resource companies as follows:
- Timber is a resource that grows unlike iron ore, coal, etc.
- Timber can be harvested at the rate it is growing so stocks are not depleted
- Growth can be measured and accounted for through observation opposed to inferred
- Unlike traditional resources, the lowest grade resource is harvested first so it can be replenished with a higher grade.
However, Kangaroo Island Plantations is currently awaiting approval from the South Australian government to build a wharf before they start harvesting the timber. In the meantime, they sit patiently while their resource grows.
Professional Fund Managers
There were also some questions and answers with professional fund managers such as Tony Hansen from EGP Capital, Oscar Oberg from Wilson Asset Management and Matthew Kidman from Centennial Asset Management. Some members of the audience took the opportunity to ask for some tips and tricks, such as generating new ideas and identifying ‘red flags’.
Summary
The presentations on each company ran for around 20 minutes, so a detailed summary of the presentations is beyond the scope of this article and would not do the presentations the justice they deserve. However, the presentations provided a great starting point to research small companies like Volapara and Kangaroo Island Plantations. I am very much looking forward to the next event!
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Disclaimer: At the time of writing, Andrew holds units in EGP Capital. Andrew does not own shares directly in any of the companies mentioned.
