ASX small-cap sentiment has been gaining steam over the last 12 months.
Despite coming with significant volatility, experts have suggested that conditions could be favourable for small caps.
According to VanEck, valuations for global small caps are reasonable/attractive relative to global large caps (MSCI World Index), with valuations close to 25-year lows.
Here in Australia, ASX small-cap shares outperformed larger players by almost 2.5 times in 2025.
New analysis from two brokers has identified two more exciting small caps that should be on investors' radars this year.
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Alpha HPA Ltd (ASX: A4N)
Alpha HPA is an Australian mining company specialising in high purity alumina (HPA). HPA is a key component of lithium-ion batteries, LED lighting, and has other essential commercial applications.
A4N's HPA First Project in Gladstone (Queensland) is aiming to supply high-purity aluminium-based products to the semiconductor, lithium-ion battery, and light emitting diode (LED) manufacturing sectors.
The project's proprietary technology is expected to disrupt incumbent HPA production. This is through delivering ultra-high purity products with significantly lower unit costs.
The company has drawn a speculative buy recommendation from Bell Potter.
In a note out of the broker yesterday, it said the company recently completed a $225m equity placement. This will support delivery and commercialisation of the HPA First Stage 2 Project.
The placement was supported by the Australian Government's National Reconstruction Fund Corporation.
Bell Potter said A4N is now expecting higher product prices, boosting potential revenue. The project's profits are also projected to grow, with EBITDA estimated at $289 million.
On the other hand, the project will cost more to build, with capital costs now at $699 million.
First production is slightly delayed, now expected in FY28, about six months later than originally planned.
The team at Bell Potter currently has a price target of $1.50 on this ASX small cap.
From yesterday's closing price of $0.72, that indicates an upside of 108.33%.
A4N's HPA First process has a competitive advantage in the production of aluminabased thermal interface fillers and Chemical Mechanical Planarization abrasives for the semiconductor sector.
A Stage 1 facility commissioned in 2022 has technically derisked the process and is providing product for market outreach and customer qualification.
Island Pharmaceuticals Ltd (ASX: ILA)
Island Pharmaceuticals is an ASX-listed biotech company developing its flagship drug ISLA-101 against mosquito diseases.
In a note out of Morgans last week, the broker said The FDA has provided formal confirmation and alignment on Galidesivir's Animal Rule development pathway, setting out a clear two-stage program and materially de-risking the asset.
The update represents the strongest regulatory signal to date that Galidesivir is on a viable, accelerated path toward approval as a US biodefence countermeasure and supports multiple potential value levers including a Priority Review Voucher.
ILA has also announced it has raised A$9m at A$0.35, which the company believes will be ample funding to see Galvesivir through to potential marketing approval, as well as sufficient excess to advance other opportunities in Ebola and Sudan Viruses.
