2 ASX small-cap shares I think are primed for take-off

From small things, big things can grow.

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The ASX small-cap shares that I'm going to tell you about have loads of growth potential in my opinion. I believe that if we can identify future winners and buy them at good prices, that could be a recipe for success.

Certainly, being able to identify ASX growth shares at a relatively early stage of their journey can be a rewarding investment. However, just because a share is small doesn't necessarily mean it's going to grow a lot.

That said, I do like what I'm seeing with the following two ASX small-cap shares.

Frontier Digital Ventures Ltd (ASX: FDV)

Frontier Digital Ventures describes itself as an owner and operator of online classifieds marketplaces in fast-growing, emerging regions.

The business has split into business into three regions – Latin America, Middle East, and North Africa (MENA) and Asia. It works alongside local management teams across property, automotive, and 'general' classifieds.

The ASX company aims to help emerging market businesses grow, and looks to "unlock further monetisation opportunities beyond the typical classifieds revenue, to grow the equity value of its operating companies".

The Frontier Digital Ventures share price is down close to 80% from November 2021, and 43% lower since the start of the year, as we can see on the chart below.

Its FY23 half-year result showed some good financial numbers, despite the global economic challenges of inflation and higher interest rates.

HY23 statutory revenue increased 7% to A$31.2 million, while statutory earnings before interest, tax, depreciation and amortisation (EBITDA) increased A$3.4 million to A$0.9 million. The company also said its three operating regions were cash flow positive. The business is more profitable than it has ever been.

I think there's a lot of earnings growth potential for the underlying businesses within this ASX small-cap share, with one major driver simply being more people in those regions connecting to the internet. According to Frontier's sources, the average internet penetration in Frontier's regions in 2023 had increased to 68%, up from 62% in 2022.

Online platforms are very scalable. Once a website has been developed, additional users/transactions are very beneficial for its profitability due to scale benefits.

In the next five to 10 years, I believe the underlying businesses can grow their revenue and significantly increase their profitability.

RPMGlobal Holdings Ltd (ASX: RUL)

RPMGlobal describes itself as a global leader in the provision and development of mining software solutions, advisory services, and professional development for the mining industry. Its goal is to "support mining clients extract more value at every stage of the mining lifecycle". The ASX small-cap share has worked in more than 125 countries.

Despite delivering an impressive FY23 result, the RPMGlobal share price has fallen 13% in September and it's down 36% since December 2021, as we can see on the chart below.

I liked what I saw in the company's FY23 result. While total revenue increased 18% to $98.4 million, it was the 50% increase in subscription revenue to $39.3 million that was particularly exciting to me. If the business can keep growing subscription revenue strongly, then the future looks bright.

Net operating expenses only increased 8% to $76.6 million, which enabled underlying operating EBITDA to rise 114% to $15 million, and net profit after tax (NPAT) improved $8.5 million to $5.1 million. Operating cash flow grew $15.7 million.

To me, it seems like RPMGlobal has reached an inflection point of profitability and cash flow, yet the market doesn't seem excited by it. If it can keep growing its high-margin subscription revenue, I think it has a very promising future, particularly at the lower RPMGlobal share price.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Frontier Digital Ventures and RPMGlobal. The Motley Fool Australia has recommended Frontier Digital Ventures and RPMGlobal. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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