The past year has seen a number of junior ASX companies in the technology hardware or software industries disappoint investors as their financial results fail to match up to investors' expectations.
Often this has been due to overly-optimistic management teams being long on promise, but short on delivery.
Just today tech small cap Senetas Corporation Limited (ASX: SEN) downgraded its full year profit forecasts, while others like Prophecy International Holdings Limited (ASX: PRO), 3P Learning Ltd (ASX: 3PL), Urbanise.com Ltd (ASX: UBN), Reffind Ltd (ASX: RFN), 1-Page Ltd (ASX: 1PG) and Touchcorp Ltd (ASX: TCH) have all bombed after revealing weaker-than-expected financial results amidst a range of excuses as to why management's "forecasts" were not met.
In fact high-quality and fast-growing small-cap tech stocks with strong track records and excellent management teams are rare on the Australian stock exchange. Not as rare as a Donald Trump apology, but still uncommon amongst a bunch of Panglossian hopefuls.
One of the rare small-cap success stories with well grounded expectations is online voice communications operator MNF Group Ltd (ASX: MNF). It has the track record and management team to back its lofty valuation and with some margin-expanding potential and new business units to be factored into FY 2018's results I expect its share price could remain stuck in an updraught.
Another business that today went against the small-cap tech grain by actually upgrading profit forecasts is Rungepincockminarco Ltd (ASX: RUL).
It's a global leader in the niche field of the provision of software and advisory services to companies in the mining industry.
RUL is now expecting to more than double its software licensing revenue over H1 2017, with total software revenues up around 50% to an expected $24.1 million. Its advisory business is also enjoying better conditions for the mining industry generally, while operational costs across the whole business have been held in check.
The result is that the business expects EBITDA for H1 2017 of $3.1 million, compared to nothing in the prior corresponding half. It also has a strong balance sheet with $19.5 million in cash and no debt as at December 31 2016.
Overall, RUL's shift away from IT-consultancy work into the software services space appears to be progressing well and the fact that the mining cycle looks to have bottomed is another major positive for a business with a reasonable track record.
Still I would prefer MNF Group as a rare tech small-cap actually able to deliver on investors' expectations for consistent profit growth.
Some of the best other junior tech businesses remain in private hands, such as data analytics business Nuix. It's tipped to potentially IPO in the year ahead and I expect it may prove the real deal in terms of its long term earnings growth potential. It's no big secret though, which means it's likely to command a lofty IPO valuation.
