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3 under-the-radar small caps liked by brokers

Investors of all shapes and sizes can benefit from the advice of industry experts.

Brokers have made recommendations on these under-the-radar small caps for a variety of reasons, find out more below.

Zip Co Ltd (ASX: Z1P)

Digital retail finance company and $233 million market cap company Zip Co Ltd offers point-of-sale payment services to the retail, education, health and travel industries and according to Ord Minnett is currently “delivering against expectations”.

The broker has an accumulate recommendation on the stock after Zip’s March quarterly report delivered well above expectations, with its cash flow for the period improving by $2.8 million.

Zip’s share price has plateaued for the best part of the last 12-months, but spiked up on the release of half-year results in February, which saw Zip report a revenue rise of 139% to $16 million with its bad debt level percentage now lower than the industry benchmarks.

According to Ord Minnett, Zip is on track to book some pleasing full year results, and while Ord Minnett name credit risk and regulatory risks as notable, Zip’s ability to grow its customer base by 216% in the last year cannot be ignored.

Ord Minnett has a 90c price target on the stock – Zip closed on May 18 at 81c per share – up from 67c per share this time last year.

While the broker concedes the company is still relatively high risk, it cannot deny its future looks promising and its strong underlying sales results for the March quarter indicates good things are to come.

Apollo Tourism & Leisure Ltd (ASX: ATL)

Manufacturer and RV retailer Apollo Tourism & Leisure Ltd is a family-owned company operating globally and leveraging on the “grey nomad” trends of the ageing population.

Apollo has caught the eye of investment advisory firm Taylor Collison who have placed an outperform rating on the stock which is up 2.6% at the time of writing to $1.55.

According to the broker Apollo is well-positioned for near term earnings growth with a positive FY19 outlook given industry strength and the company’s current business operations.

The broker suggests Apollo is on track to achieve EPS growth of 21.9% for FY19 and 9.2% on FY20 due to a mixture of fleet expansion activities across Canada and the US and a greenfields site expansion in the US.

Its target price on the stock has increased by 4% to $1.78 based on an EPS multiple of 13.5x FY19 estimates, which led to the upgrade to outperform and a bullish approach to the stock going forward.

Apollo recently acquired UK & Ireland RV rental business Camperco for $8.2 million in cash and shares which supports Apollo’s strategy to become a “global RV solution”.

One to watch as its UK and US expansions pick up pace.

Prime Media Group Limited (ASX: PRT)

Equities research group CCZ Equities has zoomed in on media sector small cap Prime Media Group Limited – a regional broadcasting company.

Prime may only be a $115 million market cap company at present, but it appears to have big plans on the horizon for its expansion, which have led to CCZ placing a buy/hold rating on the stock.

Prime’s May trading update reported an 8.9% fall in FY18 year-to-date revenues on the previous corresponding period – but the previous period did include the Rio Olympics, so a drop was expected.

The revenue drop led Prime to drop its NPAT forecast to between $24.3 million and $25.3 million and the broker has speculated Prime could be a takeover or merger target for Seven West Media Ltd (ASX: SWM) or Fairfax Media Ltd (ASX: FXJ), as the current affiliation agreement between Prime and Seven West ends in mid-2019.

The broker labelled Prime as having been “superbly run” by CEO Ian Audsley, with its local news at number one ratings in all areas except Newcastle. It suggests investors who hold at this point should accept a possible Seven West takeover at around 44c per share.

Prime shares closed at 32c on May 18 and have experienced a fairly volatile 12 months in terms of pricing.

To make big returns you have to get on board the small caps before they make bank.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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