There are some small ASX shares that reported impressively according to Naos Asset Management. They could be worth watching.
One of the listed investment companies (LICs) in Naos' stable is called Naos Emerging Opportunities Company Ltd (ASX: NCC). It targets small stocks with market capitalisations under $250 million. This LIC generally invests in industrial companies.
Since the LIC's inception, its portfolio's investment performance after all operating expenses, but before fees and taxes, was 12.3% per annum to the end of February 2021.
Despite a negative impact from its holding of BTC Health Ltd (ASX: BTC), the Naos Emerging Opportunities Company investment portfolio managed to make a return of 4.3% in February 2021.
Naos attributed its good performance to the reports delivered by its holdings, including the below three which it still believes remain undervalued with catalysts that may eventuate during the rest of FY21.
Experience Co Ltd (ASX: EXP)
Experience is an adventure tourism company that offers experiences of tandem skydiving, indigenous experiences and tours to the Great Barrier Reef.
Naos said that the small ASX share released a highly commendable result with the business remaining profitable and cash flow positive in a challenging environment due to COVID-19 effects.
The fund manager has stated numerous times that it believes a significant amount of progress has been made by the current management team and that will have a positive impact on the future profitability of the business with the return of domestic tourism demand.
Initiatives by Experience include gross distribution agreements, corporate cost initiatives, new product offerings and asset base realisation. Naos believes that over the next two years, helped by small acquisitions, it can be a business that generates around $50 million of earnings before interest, tax, depreciation and amortisation (EBITDA).
Saunders International Ltd (ASX: SND)
Saunders International is a small ASX share that provides construction, maintenance and engineering services to the energy, resources and infrastructure sectors. Some of its clients include Sydney Water, the Australian Government, Lendlease Group (ASX: LLC) and Rio Tinto Limited (ASX: RIO).
Naos said that Saunders International probably released the strongest result in the Naos Emerging Opportunities Company portfolio.
The fund manager said that recent half-year results have shown losses or minimal profits. But in this report it made a "significant" profit with earnings before interest and tax (EBIT) of $4 million and declared an interim dividend for the first time in almost three years.
Saunders International managed to exceed its entire FY21 guidance in just the first six months of FY21.
The small ASX share's management has said that they don't see any slowdown in the financial performance of the business a with a new revised FY21 revenue target of $110 million to $110 million and EBIT margins of between 7% to 8%, which implies a stronger second half.
Naos believes the guidance may prove to be conservative with several industry tailwinds supporting the business for the next 12 months to three years. The fund manager said there could be opportunities that are the largest in the company's history.
The tailwinds include the federal government focus on domestic fuel storage capability, infrastructure spend with a particular focus on regional programs including bridge replacement, there are also numerous and significant opportunities within the defence sector.
Big River Industries Ltd (ASX: BRI)
Big River is involved in many different timber operations. It's a major manufacturer of softwood and hardwood formply and structural plywood products in Australia, a major seller of consumable formwork products in Australia, and it's a national merchant of timber and associated building products to local trade, medium sized and enterprise sized companies.
The timber business produced a strong result according to Naos, with EBITDA growing by 15% compared to the prior corresponding period, which wasn't affected by COVID-19.
The fund manager was excited by new information in the half-year result which Naos believes could potentially result in the small ASX share more than doubling its current annualised net profit after tax run rate of $6.2 million.
According to Naos, Big River Industries' acquisition of Timberwood remains on track with the company trading well and forecast to contribute around $3 million of net profit after tax based on the current run rate.
The net cash inflow resulting from the closure of the Wagga Wagga facility and subsequent relocation to Grafton is expected to be around $10 million with an addition to net profit of around $2.5 million. The fund manager thinks the economic backdrop could also help grow future earnings.
