There are a number of very interesting and exciting small cap ASX shares that could be worth looking into.
Businesses that are smaller may have more growth potential simply because of how small they are starting from. It's easier to double a $500 million business to $1 billion, than doubling a $50 billion business to $100 billion.
These two businesses are delivering growth and could be worth a spot on an investor's watchlist:
Healthia Ltd (ASX: HLA)
Healthia is a small cap ASX share with a few different divisions – 'feet and ankles', 'bodies and minds' and 'eyes and ears'.
Those are represented by a number of different businesses including myFootDr, The Optical Co and All Sports Physiotherapy. It continues to make acquisitions to expand its network in each of those segments.
For example, two of its latest acquisitions include Bernie Lanigan Optometrist in Townsville and The Eyecare Place in Abbotsford, Victoria.
It aims for an earnings before interest, tax, depreciation and amortisation (EBITDA) multiple of between 3x to 4.5x for acquisitions. It expects to deploy a minimum of $20 million of capital for new businesses over the next 12 months. Acquisitions are just one part of the strategy though.
It has developed a clinically focused growth model which aims to drive organic growth and retain clinicians. Healthia has a number of centralised support functions, such as coaching, marketing and client retention strategies. It's introducing additional services too.
Healthia also owns and operates iOrthotics, DBS Medical (an allied health supplies business) and a wholesale eyewear frame distributing business. There are margin improvements to this vertically integrated model, according to management.
In the FY21 half-year result, it saw underlying EBITDA rise 90.7% to $11 million and underlying net profit go up 103.6% to $5.8 million. The underlying EBITDA margin increased 486 basis points to 17.87%.
Propel Funeral Partners Ltd (ASX: PFP)
Propel is the second largest funeral operator in Australia and New Zealand. It has around 140 locations, over 30 cremation facilities and approximately 10 cemeteries. But it still counts as a small cap ASX share.
One of the growth trends that management morbidly point to is that the number of deaths is expected to grow in the coming decades.
Death volumes in Australia are expected to increase by 2.7% per annum from 2019 to 2030 and then 2% per annum from 2030 to 2050 according to the ABS.
Propel says that the number of deaths is the most significant driver of revenue in the death care industry.
In the 2020 calendar year, Propel had grown its Australian market share to around 7%.
It also continues to see steady growth of its average revenue per funeral. In the first half of FY21, this was $5,874, which was a 3.6% increase on FY20 overall and a 2.1% increase on the pre-COVID-19 period of the first three quarters of FY20.
In the first half of FY21, it showed that whilst revenue was up just 3.5%, operating net profit after tax (NPAT) grew 7.6% and operating earnings per share (EPS) went up 7% to 8.5 cents. This allowed the board to pay an interim dividend that was 50% higher to 6 cents per share.
Propel says that recent trading indicates that death volumes may be reverting to long-term trends and there is still the growing and ageing population in Australia and New Zealand that could boost long-term revenue.
