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3 small cap stocks brokers think you should buy

A new week means a new set of small cap broker buys for investors looking to bolt some speculative picks onto their watch list.

Check out these three up-and-coming shares for the inside word from brokers.

Volpara Health Technologies Ltd (ASX: VHT)

Digital health solutions provider Volpara Health Technologies Ltd has been labelled as a buy by Ord Minnett after the broker said the company was “equipped for success”.

At just over a $150 million market cap, Volpara shares are 84c at the time of writing, with Ord Minnett’s target price coming in at 91c per share.

The broker is most enthused by Volpara’s flagship product – VolparaEnterprise – and in particular, the early stages of its US-rollout, with a recent report it will have snatched 3.7% market penetration by first quarter 2019.

According to Ord Minnett, Volpara’s products will suit the “large and growing” US breast imaging industry and the company is “well placed” to capture a meaningful piece of this market.

Although labelling it high risk, Ord Minnett is willing to bet Volpara is an exciting medical technology share.

Investors should expect revenue growth to continue in FY19 if FY18 is anything to go by – when annual recurring revenues jumped 223%.

Volpara seems to be steadily on the road to success, and although still in the speculative basket, is one to seriously consider.

EQT Holdings Ltd (ASX: EQT)

Financial services company EQT Holdings Ltd is on Wilsons radar, with the broker maintaining its buy rating on the $467 million market cap small cap.

Wilsons thought EQT “hit the mark” when it handed down its full year results, with its revenue and EBITDA in line with Wilsons’ expectations.

EQT last week announced its net profit was up 28% to $19.7 million for FY18 as revenue rose 11% and EPS jumped 26% to 97.3c.

According to Wilsons, EQT’s first half result for FY18 was the first sign the broker saw to indicate earnings potential in the company with Wilsons behind EQT’s initial focus on restructuring, which has recently shifted to focus on growth.

Wilsons believe the organic growth environment for EQT is good with solid revenue growth expected and continued cost control likely to deliver double-digit earnings growth for FY19.

EQT shares are down 1.1% to $22.73 at the time of writing, still a way off Wilsons 12-month price target of $26.16.

Wilsons identified Australia’s ageing population and thus demand for wills and estate planning as a tailwind for EQT, alongside the ample funding headroom the company has for further merger and acquisition activity within a supportive regulatory environment.

Jumbo Interactive Ltd (ASX: JIN)

Internet lottery business Jumbo Interactive Ltd has experienced solid share price growth over the last 12 months, piquing the interest of Morgans which has placed an add rating on the stock.

According to Morgans, Jumbo’s FY18 result was ahead of guidance released in early June, with significant margin expansion expected for FY19 while costs remain steady.

With company cash at $40 million – well ahead of operating requirements of $15 million – Morgans is expecting Jumbo will make solid returns to shareholders over FY19 as it is trading at a cash adjusted FY19 PE of 17x and has a 4.6% dividend yield.

With a price target of $6.31 out of Morgans, Jumbo shares are sitting down 0.5% to $6.20 at the time of writing and it has upped its EBITDA and NPAT forecasts for FY19 considerably.

One to watch as Jumbo continues to expand its customer base and improve online sales penetration.

Speculative stocks are often called "disruptors".

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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 and has recommended VOLPARA FPO NZ. 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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