If you have a higher than average tolerance for risk, then it could be worth checking out the small cap ASX stock in this article.
That's because it has just been named as a buy and tipped to rise very strongly from current levels.
Which small cap ASX stock?
The stock in focus is Praemium Ltd (ASX: PPS). It is a financial technology company that operates an investment platform that supports financial intermediaries and individual investors in managing wealth.
According to a note out of Bell Potter, its analysts believe that the market is underappreciating the small cap ASX stock and underestimating its growth potential. Its analysts said:
PPS' platform revenue is augmented by asset appreciation and regular contributions, supporting growth in the absence of client wins. However, the share price has lagged peer multiples while demonstrating good investment and improved cost growth for its size.
We believe consensus expectations for FUA growth appear conservative based on PPS' current market share of 2.5%. There remains a significant opportunity for PPS to extend its presence, particularly as four legacy providers (who have exited financial advice) continue to hold 55.5% combined share.
In addition, the broker has been pleased with the divestment of its international business and highlights that it is now well-placed to grow its FUA profitably. It adds:
PPS has continued to accelerate its technology offering while indicating higher cash EBITDA, supported by the divestment of its loss-making international business and, more recently, repricing initiatives with lower underlying expense growth (excluding OneVue). Adviser related attrition is also nearing completion, leaving PPS to invest, compete and drive profitably FUA growth. We believe a revaluation of the stock could support an equity value of over $450m.
Big returns
The note reveals that Bell Potter has initiated coverage on the small cap ASX stock with a buy rating and $1.00 price target.
Based on its current share price of 69.5 cents, this implies potential upside of 44% for investors over the next 12 months.
Commenting on its initiation, the broker said:
We initiate coverage at a time of elevated valuations, with PPS strategically positioned to grow its platform market share, chiefly driven by rollout of the next-generation IDPS platform, loyal customer base and leading technology. These aspects also favour PPS as a potential takeover candidate to that end.
We are encouraged by its proven track record in growing managed account FUA and expect a similar outcome for Spectrum as PPS gains broader appeal behind niche. Additionally, PPS is progressing with the integration of OneVue, expected to produce mid-teens EPS accretion once operations and technology are consolidated, likely from FY26e.
