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3 small cap buys brokers are backing

Several key brokers have named three small-cap buys that could be the speculative picks you’ve been waiting for.

Fiducian Group Ltd (ASX: FID)

Wilsons has labelled Australian financial services company Fiducian Group Ltd a buy off the back of its FY18 results.

Fiducian revealed 22.4% year-on-year NPAT growth with NPAT coming in at $9.2 million – exceeding Wilsons estimate of $9.1 million.

EBITDA also came in above Wilsons expectations at $14.4 million with funds under management (FUM) totalling $2.37 billion and funds under administration (FUA) at $2.41 billion.

According to Wilsons, the results are “clean”, and Fiducian is delivering ahead of soft guidance with consistent double-digit earnings growth.

The broker expects current earnings momentum to continue.

Wilsons believes investor concerns are reflected in the very low multiple regarding Fiducian’s vertically integrated model but say they “do not believe vertically integrated wealth managers will be forced to structurally separate”.

Fiducian reported record second-half net fund inflows of $115 million, up from its first half inflows of $114 million.

Centuria Industrial Reit (ASX: CIP)

Moelis Australia has placed a buy rating on property investment and funds management group Centuria Industrial Reit.

According to the broker, Centuria’s strong assets under management (AUM) growth – up 250% over the last two years – will continue to drive earnings higher, with Centuria’s EPS of 16.3c for FY18 above Moelis’ guidance of between 15.8c and 16.2c.

Moelis has increased its price target on Centuria to $1.62 on the belief the company’s growing funds under management (FUM) – from $1.9 billion in FY16 to $4.9 billion in FY18 – means Centuria has achieved a scale that now has earnings underpinned by strong recurring revenues.

Moelis says investor appetite remains strong across the company’s unlisted retail investors – evidenced by record levels of demand in the recent raising for the Adelaide syndicate, which was oversubscribed and closed within five days of launch.

Moelis estimate Centuria’s core Real Estate Funds Management business is trading on 7.5x EV/EBIT – an “attractive valuation” given strong AUM growth.

Other REIT’s on watch include Scentre Group (ASX: SCG) – due to hand down its own financial reports this week.

Charter Hall Long WALE REIT (ASX: CLW) shares have been on the incline since the release of its FY18 results earlier this month which revealed a 100% occupancy rate and 3.9% growth in FY18 EPS.

Webster Limited Fully Paid Ord. Shrs (ASX: WBA)

CCZ Equities has a buy rating on food production company with water and walnuts interests – Webster Limited Fully Paid Ord. Shrs – on the belief its ownership of water entitlements is “liquid gold” for FY19.

According to the broker, the water entitlements de-risk Webster’s Southern NSW crop with its 2018/19 cotton and walnut season expected to be strong.

Dry conditions are driving spot prices higher for water allocations with CCZ of the view Webster’s water entitlements are worth $365 million in market cap.

CCZ “value Webster on an asset-backed sum of parts methodology” with the company’s development pipeline of new almond and walnut plantations placing the company in a strong balance sheet and P&L position for FY20e.

Other agricultural stocks to keep an eye on include Elders Ltd (ASX: ELD) with investors set to wait until November for its annual report and results.

Nufarm Limited (ASX: NUF) will release its results late next month, with Graincorp Ltd’s (ASX: GNC) also not due out until November.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Elders Limited and Scentre Group. 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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