'Substantial returns over years ahead': 2 ASX small caps starting 2024 with a bang

Smaller companies have struggled over the past two years compared to their larger rivals, but this year could see the tables turned.

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After a couple of years of severe underperformance, many experts have been tipping 2024 could be the year when ASX small-cap shares come roaring back.

Already some green shoots have popped up.

The analysts at LSN Emerging Companies Fund have invested in a couple of those, and have explained why they are bullish:

'Higher barriers to entry and attractive long term cash flows'

Financial services provider EQT Holdings Ltd (ASX: EQT) enjoyed an 8% rise in share price in January, all while delivering a 3.5% fully franked dividend yield

The LSN analysts are looking forward to more of the same.

"Strong growth in funds under management, tailwinds from rising equity markets and the benefits from its AET acquisition will see earnings compound 17% over the next 3 years," read their memo to clients.

Both Ord Minnett and Wilsons agree with the LSN team, rating EQT shares a strong buy, according to CMC Invest.

The LSN memo noted that the company is led by "a capable management team".

"We think the company is well positioned to deliver substantial returns for shareholders over the years ahead with recent M&A in the sector further highlighting the higher barriers to entry and attractive long term cash flows these businesses produce."

The small cap that's been the exception to the rule

MMA Offshore Ltd (ASX: MRM) has defied the small-cap malaise for a while now, doubling its share price over the past 12 months.

It's an incredible 350% rise if you go back two years.

After the stock added another 11.2% last month, the LSN team admitted they took some profits — but it still holds MMA Offshore for the long run.

"MMA Offshore has enjoyed a meteoric share price rise over the past two years as the marine and subsea service sector benefits from strong demand and limited supply of vessels."

The turnaround in the business has been remarkable.

"MMA has transformed from a loss-making company saddled with onerous debt obligations to now generating around $50 million profit and balance sheet with net cash.

"The outlook remains favourable given increasing customer capex, particularly in offshore wind and rig decommissioning projects."

It's no wonder all five analysts surveyed on CMC Invest insist MMA Offshore is still a strong buy.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Mma Offshore. 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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