5 broker-backed small-to-mid-caps for your watchlist

Big name broker Wilsons has named 5 small-to-mid-cap stocks on its radar off the back of its Rapid Insights Conference. Note: this article incorrectly attributed the conference to Wilson’s Asset Management, when in fact, the Rapid Insights Conference was put on by Wilsons Advisory. We apologise for the error.

Here’s why they should be on your watchlist too.

  1. Bravura Solutions Ltd (ASX: BVS)

Wilsons has a buy rating on software products and services company Bravura Solutions with a price target of $3.27 – Bravura shares are down 0.8% to $3.33 at the time of writing.

While there hasn’t been much news out of Bravura of late, Wilsons thinks its customer-base is strong, with plenty of demand for its flagship Sonata product across multiple regions producing a high-margin revenue stream with more wealth management customers expected to come on board.

Wilsons likes the odds for Bravura’s continued global expansion, with a “large and under-penetrated” market for UK Life & Pensions and opportunities recognised in Germany, Italy and Canada for mid-term expansion.

Wilsons recently upgraded its FY20 earnings expectations, with FY18 trading expected to be on track and “guidance of high teens growth” with larger deals beginning to evolve in the pipeline for Bravura.

As a wrap Wilsons believes Bravura is a “rare stock with high levels of forecast visibility” and strong structural drivers with multi-year growth expected and the added upside that management seem “in complete control of the business”.

  1. EQT Holdings Ltd (ASX: EQT)

It’s another buy rating for financial services company EQT Holdings Ltd out of Wilsons with its positive momentum expected to continue into the second half of FY18 and beyond.

According to Wilsons EQT management has a “strong handle on the business” following a successful corporate restructure and operating model review.

Wilsons believe EQT will pursue merger and acquisition opportunities, especially across its international markets of Luxembourg and Ireland, with $30 million of acquisitive capacity and support from the board for inorganic growth.

The buy rating is supported by a $22.78 price target – EQR shares were at $20.95 at the time of writing.

  1. Integrated Research Limited (ASX: IRI)

Wilsons has placed a sell on software solutions company Integrated Research Limited after some second-half slippage and cash flow risks.

Wilsons price target of $2.65 is below where the share price is currently sitting – down 0.3% to $3.09.

Behind the sell note is concern the combination of high R&D activity will soak up funds while the company’s move to term-based licensing structure could weaken cash flow for the next two years.

Integrated Research is a software provider whose revenues are derived from its primary product Prognosis, and while renewal rates are high, the evolution to cloud-based solutions does create some risks for the product, according to Wilsons.

Rising threats from competitors are also on the risk profile for Integrated Research and Wilsons forecast an EBITDA margin decline for FY18 with key competitors being Amazon, Huawei and Vonage.

  1. Noni B Limited (ASX: NBL)

Fashion retailer of women’s apparel and accessories, Noni B, is in buy territory, according to Wilsons, who has a $4.74 price target on the stock which was down 2.5% at the time of writing to $3.02.

Wilsons’ confidence in the stock has to do with its acquisition of 5 brands from Speciality Fashion Group Ltd (ASX: SFH) namely Millers, Katies, Crossroads, Rivers and Autograph.

Wilsons expects the bolt on to improve Noni B’s market position “materially” with a forecast 1404 stores and turnover of $892 million in FY19.

Wilsons concedes aggressive discounting by peers remains a risk alongside a decline in broader retail sales but believes the acquisition will prove favourable for Noni B.

  1. Fiducian Group Ltd (ASX: FID)

Wilsons also has financial services small cap Fiducian Group on its mind, placing a buy rating on the $136 million market cap company and a $6.03 price target.

Fiducian shares were static at $4.35 at the time of writing.

According to Wilsons, Fiducian exceeded Funds Under Management (FUM) expectations, with $6.47 billion on its books – above Wilsons’ forecast of $6.4.

Wilsons likes its “clean track record” and “strong internal controls” in an environment led by Royal Commission hearings on wealth managers and platforms.

Wilsons expect Fiducian to deliver double-digit earnings growth going forward with the potential for greater gains when the merger and acquisition market picks up after a slow second half.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Bravura Solutions Ltd. The Motley Fool Australia has recommended Integrated Research Limited. 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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