The ASX tech sector is filled with popular names such as Afterpay Touch Group Ltd (ASX: APT), Appen Ltd (ASX: APX) and Altium Limited (ASX: ALU). These are all successful growth stories, but here are some small-cap companies that could potentially be the next generation of popular names.
Rhipe Ltd (ASX: RHP)
Rhipe provide wholesale subscription software licenses to a growing number of IT service providers in the Asia Pacific region. The group has three main business divisions. (1) Cloud licensing that sells software and implemented by IT service providers. (2) Cloud solutions that provide support and professional services to help vendors and service providers with technical needs. (3) Cloud operations through their platform Cloud first, that provides digital first marketing to drive demand for channel partners.
The company provided a positive Q1 FY19 guidance during its AGM on November 8, 2018. This trading update included:
- Group revenue up 30% to 55m for FY19 Q1
- Group operating profit of $2.8 million (an increase of 100% on prior corresponding period)
- Increased FY19 operating profit to a range of $10.5m to $11.5m
Most of Rhipe’s software subscriptions are for products from world leading software vendors such as Microsoft, Vmware and Citrix.
Rhipe is positioned strongly to grow in a sector where businesses are continuously moving to the Cloud or require Cloud solutions. The Rhipe share price is trading at 38x FY18 earning which is incredibly fair given their strong growth portfolio.
Audinate Group Ltd (ASX: AD8)
Audinate is the provider of digital Audio-Visual networking technologies. Dante is Audinate’s technology platform which distributes digital audio signals over computer networks.
Audinate provides products and services to renowned names such as Yamaha, Bose, Bosch and Sony. The company is growing rapidly with its technology platform Dante achieving “nearly five times the adoption of its closest competitor”.
The company is in its early days with new products that can more than double its addressable market. Audinate’s key priorities in FY19 are to geographically expand sales, increase market awareness of Dante products and further R&D.
In the company’s second-quarter update:
- Cash collections of $7.2m up 49% from the previous corresponding period and up 7% from last quarter
- Rising operating cash flow of $0.6m compared to pcp of $0.3m
Audinate is a market leader in networked audio products and I have confidence in its growth moving forward.
Over the Wire Holdings Ltd (ASX: OTW)
Over The Wire is a telecommunications, cloud and IT solutions provider that operates across Australia and New Zealand.
The company is currently targetting >20% year on year organic growth while successfully integrating numerous acquisitions over the last three years.
In its FY18 financial highlights, Over the Wire delivered:
- +56% growth in revenue up to $53.6m
- +20% increase in revenue through organic growth
- +66% total EBITDA up to $12.3m
- +68% total NPAT up to $6.8m
The company has a strong record of financial performance and growth both organic and from acquisitions.
On October 18, 2018, the company made another acquisition to purchase Access Digital Networks and Comlinx that would make significant EPS accretion in FY19 and beyond.
Over The Wire has a P/E ratio of 32x FY18 earnings.
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Motley Fool contributor Kerry Sun owns shares of Over The Wire Holdings Ltd. The Motley Fool Australia owns shares of and has recommended AUDINATEGL FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO, Altium, and Appen Ltd. 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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