If you have a high tolerance for risk, then it could be worth considering Adveritas Ltd (ASX: AV1) shares according to Bell Potter.
That's because the broker believes this small cap ASX tech share could have major upside potential.
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What is Adveritas?
This small cap ASX tech share is a technology company that develops software solutions for enterprise customers to help maximise the return on digital advertising spend.
Its key product is TrafficGuard, which is a SaaS platform that detects and intercepts fraudulent traffic in real time. This enables advertisers to reduce wasted ad spend and optimise their budgets.
Bell Potter notes that the market for ad fraud software like TrafficGuard is relatively nascent, but is growing rapidly and Adveritas is already a leading global player.
What is the broker saying about this small cap ASX tech share?
Bell Potter notes that Adveritas recently released its quarterly update and revealed annualised recurring revenue (ARR) ahead of expectations. It said:
ARR of $14.3m at the end of Q2 was up 17% on the end of Q1 and 2% ahead of our forecast of $14.0m. In absolute terms, ARR grew $2.1m in Q2 which was similar to the $1.7m in Q1 and $2.6m in Q4 of FY25 so there has now been three consecutive quarters of c.$2m growth.
And while the small cap ASX tech share's cash generation was lower than expected, the broker thinks this was driven by a customer preference for monthly plans rather than annual plans. It adds:
Net operating cash was an outflow of $0.7m whereas we were expecting an inflow of $0.5m. The miss was driven by both lower cash receipts ($3.2m vs BPe $4.0m) and higher cash payments ($3.9m vs BPe $3.5m) than we were forecasting. The lower cash receipts appear to be largely driven by the continued shift from annual to monthly payments by customers. The cash balance at 31 December was $6.9m which was only marginally down on the $7.0m at 30 September.
Should you invest?
Looking ahead, Bell Potter continues to believe that the small cap can achieve ARR of $17.8 million in FY 2026. In light of this, the broker thinks it could be a good option for investors looking for exposure to the small side of the market.
According to the note, it has retained its speculative buy rating on Adveritas' shares with a trimmed price target of 22 cents (from 23 cents).
Based on its current share price of 12.5 cents, this implies potential upside of 76% for investors over the next 12 months.
The broker concludes:
We have rolled forward our EV/Revenue valuation a year and now apply a 6x multiple to forecast FY27 revenue. We have also increased the risk-free rate in the DCF from 4.25% to 4.5% which has increased the WACC we apply from 9.9% to 10.1%. The net result is a 4% decrease in our price target to $0.22 which is >15% premium to the share price so we maintain our BUY recommendation.
Potential catalysts include the next quarterly in April where another quarter of c.$2m ARR growth will make our year end forecast of $17.8m look increasingly achievable if not conservative. There may also be positive news flow around new agency and/or channel partnerships.
