Pinnacle Investment Management Group Ltd (ASX: PNI) recently held its annual Investment Summit for 2022.
At the event, a number of CIOs and portfolio managers from within Pinnacle's network of affiliated asset managers provided insights. This includes portfolio managers from specialist small cap fund managers Spheria Asset Management and Longwave Capital.
Two small cap ASX shares that these portfolio managers rate highly right now are listed below. Here's what they are saying about them:
Imdex Limited (ASX: IMD)
David Wanis from Longwave Capital Partners picked out mining technology company Imdex at the event. Its technology allows drilling contractors and resource companies to safely find, mine, and define orebodies with precision and at speed.
The portfolio manager highlights that Imdex is a technology business generating earnings and cash flow as well as spending big on research and development activities. Yet despite this, the company is valued materially less than some tech companies that are built largely on hope. Brainchip Holdings Ltd (ASX: BRN) with its $1.7 billion market capitalisation springs to my mind here.
Wanis commented:
Imdex is a mining technology business. It's a real business – real revenues, real earnings, real cash flow – but it's also a business that's invested almost $100 million in R&D over the past five years in new products to grow their business into new markets. And if we think about how the market values a company like Imdex versus some of these 'tech hope stocks' in the market today, there's a massive disconnect. There's a big disconnect between the doers – the companies who are actually innovating and executing – versus those that are promising and are built off hype.
We think what we'll see in the very short term is an improvement in their mining technology as a percentage of their revenue that will lead to an expansion in their EBITDA margins. But strategically longer term it'll also potentially expand their market size by four times – doubling from existing into new exploration, and then from exploration into production."
NZME Ltd (ASX: NZM)
Spheria's Asset Management portfolio manager, Matthew Booker, picked out NZME (New Zealand Media and Entertainment) at the event. He highlights that NZME is going from old world to new with the growth in the digital side of their business.
Booker points out that the New Zealand market is behind Australia by a few years in respect to real estate listings. This bodes well for NZME's OneRoof platform.
He explained:
The big kicker, we believe, is the digital aspect to the business – so they've got a business called OneRoof and it's similar to Domain here. It's the number two player in the market. It's going from print, it's going to digital, it's probably 5 – 10 years behind the Aussie market. So, there is going to be a lot of money made in that space.
With OneRoof NZME have the number two platform, they've got the number two audience, they've got the number two inventory, they are going to be that number two player in that market and that's a valuable position going forward. "NZME is a structural growth story. We think there's lots of money to be made here. The balance sheet is gone from $100 million of debt to net cash. The risk is very low, there's a rerate opportunity with this business.
