From dental hygiene to FIFO flight operators, Yarra Capital Management microcaps portfolio manager Joel Fleming says investors can find opportunities for fast growth in the small end of town.

Speaking on Reach Markets’ Meet the Fund Manager webcast on January 29, Mr Fleming said the microcap sector is incredibly dynamic and offered a few compelling reasons to invest. 

“These include faster growth and purer exposure to individual sectors, and investors aren’t “dealing with the same 90 to 100 companies year in, year out”, he said.

“This is the nursery of future winners,” he said.

“This is where the great businesses of tomorrow are going to be found, and the ability to generate long term capital growth is really compelling.”

Mr Fleming noted three companies which Yarra Capital Management believes represent good opportunities. 

Alliance Aviation

While it may seem unusual to invest in an airline at a time when most flights have been grounded, Mr Fleming said Alliance Aviation’s (ASX: AQZ) offering as a fly-in, fly-out (FIFO) transport solution for miners helped the resources industry keep operating through the pandemic.

Australia’s vast size and the relative remoteness of the nation’s cities presents an opportunity for Alliance to take significant FIFO market share by taking up long-term contracts with major businesses.

This model also reduces fuel and passenger risk, Mr Fleming added.

Alliance’s market capitalisation was just under $610 million by close of business Wednesday 3 February.

ERoads

Moving from the sky to the roads, the next business named by Mr Fleming was road fleet telematics company Eroad (ASX: ERD).

Mr Fleming said businesses’ requirements to keep their drivers safe and their operations compliant represents a tailwind for technology providers that can manage these challenges. 

At close of trade on Wednesday, 3 February, Eroad had a market capitalisation of $367.7 million.

Pacific Smiles

Mr Fleming noted that for many, a trip to the dentist is something few consumers look forward to, but nonetheless Pacific Smiles (ASX: PSQ) are looking to disrupt the dental industry. 

The company provides spaces for dentists to come in and work, and then simply leave – which Mr Fleming said suits many professionals who don’t wish to purchase their own business.

While the business has been an underperformer over the long term, the new managing director has changed the operating model with a focus on costs and Mr Fleming said the results of these shifts are beginning to show.

The company ended the day with a market capitalisation of $397.6 million, on 3 February.

From little things, big things grow – quickly

Although the micro-cap sector typically gets less media coverage and fewer brokerages conducting research, Mr Fleming said good microcap companies tend to grow faster.

“That’s really interesting in a world where growth is hard to find,” he said

He put this accelerated growth rate down to microcap businesses’ tendency to offer new and more innovative products which few, if any, rivals are also offering.

This enables them to grow independently of changes in the broader economy, Mr Fleming said.

“This is about companies that are growing because they have a better product, a better solution, customers are flocking to them and their business model is differentiated,” he said.

“The ability to grow outside of what’s happening more broadly because you’re delivering on a successful idea is really compelling.”

This article is a summary of the information Mr Fleming shared with us during the session. You can watch a recording of the session below, or you can click here to book into our next installment of ‘The Insider: Meet the Fund Manager’ session.

Reach does not assume responsibility for the accuracy or completeness of any information provided, and the views expressed are not reflective of Reach Markets position.

Any advice contained within this presentation is general advice and does not consider your personal circumstance, you should consider whether it’s appropriate for you.

The information we are giving you is for educational purposes only. “Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss.

Sources:

• ASX, Alliance Aviation Services Limited
• ASX, ERoad Limited
• ASX, Pacific Smiles Group Limited
• Reach Markets, Reach Insights – A fund manager’s insider view (webcast replay)