With rising geopolitical concerns and weakening macro indicators, many investors are moving their focus from high growth stocks and moving their focus to companies with better value.
In a recent investor roadshow, fund managers from NAOS Asset Management shared their view on potential value stocks listed on the ASX.
MNF Group Ltd (ASX: MNF)
MNF Group develop and operate global communication networks and software services. The company's voice-over-internet (VOIP) services power communication in apps and other platforms, boasting an impressive clientele list including Microsoft, Skype, Google and Amazon.
Earlier this year, MNF saw strong bottom-line growth when the company reported full year earnings for FY19. Highlights included new record levels of profitability with an 11% increase in earning before interest, tax, depreciation and amortisation (EBITDA) and an 89% increase in recurring revenue streams.
MNF is a key holding in the NAOS portfolio with managers describing it as "selling picks and shovels for the telco sector". The company is well positioned to take advantage of recurring revenue opportunities though key acquisitions and strong competitive advantage.
MotorCycle Holdings Ltd (ASX: MTO)
MotorCycle Holdings is Australia's leading motorcycle dealership and accessory group. Market conditions in the sector have been weak, which was reflected in the company's full year results for FY19. MotorCycle reported EBITDA of $18 million and a 13% decrease in earnings per share.
Despite the challenging environment, the company managed to increase revenue by 9% for the financial year and grow its market share, securing 10.6% of national new bike sales. With $9.2 million cash in the bank, MotorCycle Holdings is poised to continue its market share growth, with management eyeing acquisition opportunities in the tough market.
Given that MotorCycle is part of a cyclical sector, managers at NAOS highlight that bearish consumer sentiment is possibly reversing. According to national data, new motorcycle sales have been negative for 2 years; however, the stats in July and August of 2019 saw an increase. In addition, analysts cited rising auction clearance rates, tax cuts and lower interest rates that could also provide potential benefits for the company.
People Infrastructure Ltd (ASX: PPE)
People Infrastructure is a leading workforce management company, providing innovative solutions to workforce challenges. The company services 4 main sectors: health and community services, information technology, specialist services and general staffing.
People Infrastructure delivered a strong performance in FY19, with a 36.8% increase in EBIDTA and 43.6% improvement in NPATA. The company's strong performance was driven by a 22.7% increase in contract hire revenue and solid growth across other segments.
NAOS have highlighted People Infrastructure as a company that can benefit from an expanding healthcare sector and NDIS program. Analysts believe that the company's acquisition of 2 nursing recruitment firms should realise cost and revenue synergies
Foolish takeaway
NAOS Asset Management focus on investing in small-cap companies that represent value in the short and long term. Small-cap stocks are volatile, so it is important that investors do their own research before buying shares in any of the companies mentioned. The most prudent strategy would be to keep these stocks on a watchlist and wait for price action to confirm.
