The outrageous success of the Afterpay Ltd (ASX: APT) has investors scrambling to find the next emerging ASX stock with global potential.
It turns out that the ASX small cap that holds the key may not be a sexy tech or fintech related start-up.
Morgan Stanley looked through its small cap universe of stocks and picked the City Chic Collective Ltd (ASX: CCX) share price as its preferred global expansion story.
The best ASX small cap global expansion opportunity
City Chic is a leading women's plus-size apparel retailer in Australia but the broker reckons the global revenue opportunity stands at around US$60 billion.
If that is the case, the CCX share price has a lot more room to grow after its recent acquisition of UK retailer Evans for around £23m.
The broker reckons City Chic is well placed to make further acquisitions to advance its global ambitions.
International M&A drives material earnings upgrade
While many takeovers don't tend to work, especially an ASX company buying an overseas asset, there are a few reasons for investors to be excited about CCX's expansion.
For one, it has an existing infrastructure including e-commerce platform and warehouse facilities. CCX also has a proven track record and experience from the Avenue acquisition and an extra $50 million in its war chest.
"We estimate 15-20% upside risk to our FY22E EPS [earnings per share], if CCX can deploy capital at the same returns as Evans," said Morgan Stanley.
"We also think CCX has demonstrated capital discipline in the past by walking away from the potential Catherine's deal."
CCX profit result could beat expectations
But there's another reason to buy the CCX share price besides its merger and acquisition (M&A) potential.
Morgan Stanley believes management will deliver a first half result this month that will beat market expectations.
The broker is forecasting 1HFY21 sales growth of 24%, which is well ahead of the 15% consensus estimate.
It seems COVID-19 hasn't been much of a drag for the retailer.
Outsized returns from this ASX small cap
Recent bullish trading updates from its peers has convinced Morgan Stanley that CCX will beat the street.
These peers include the Accent Group Ltd (ASX: AX1) share price, Premier Investments Limited (ASX: PMV) share price and Super Retail Group Ltd (ASX: SUL) share price.
"Third-party web traffic data shows improving trends across all of CCX's websites," added the broker.
"We think CCX's dress business may take some time to return to pre COVID-19 levels, however, we think it has been able to offset this with an increase in casualwear."
Morgan Stanley has an "overweight" recommendation on the CCX share price with a 12-month price target of $4.50 a share.
