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A recent article appearing on the business school website of the University of New South Wales led with an interesting claim:
• ‘With over 2,100 companies listed on the ASX, it’s predominantly the top 50 getting 99% of the coverage.’
The author of the claim – Fiona Dunstan – worked for an ASX micro-cap company, which was receiving little notice at the time.  And so, in 2010 the annual Australian Microcap Investment Conference was born.
Like all investment conferences, market experts and novices have the opportunity to hear companies present their stories.  The 8th annual conference – open to institutional and retail investors; analysts; stockbrokers; and financial analysts – was held on 17 and 18 October in Melbourne.  The CEO’s of 25 ASX listed micro-caps shared the nature of the markets in which they operate as well as their own successes and future plans.
Given that the size of a company – its market capitalisation – is determined by investor interest, or lack thereof; micro-caps, by definition, typically generate less interest than large-cap blue chip stocks.  With some justification investors see more inherent risk in these smaller entities.  Some micro-caps appear on the verge of a breakout in red-hot sectors; but appearances do not always materialise into reality.  Of the 25 presenters at the Micro-Cap Conference, only four generated more than $50 million in revenue and reported a profit in FY 2017.  As a testimonial to the tendency of investors to “shoot for the moon” the two presenters with share price appreciation of over 100% year over year posted a loss with paltry revenues and high debt.  Lack of analyst coverage is another issue plaguing investors considering these low or no revenue stocks.
First, let’s look at the two stocks attracting some investors, and perhaps a greater number of punters.  
The first is Novonix Limited (NVX), up 135%.  NVX began trading on the ASX in June of this year, following a name change from graphite mining company Graphitecorp (GRA).  Graphitecorp had acquired a Canadian company, NOVONIX Battery Testing Services, said to be poised to make a major breakthrough in the testing of Lithium Ion batteries for Electric Vehicles (EVs).  
Graphitecorp also entered into a joint venture with Coulometrics, a major anode materials development company based in the US.  This potentially puts the newly christened Novonix in the enviable position of providing battery supplies and services to multiple players in the development of Lithium Ion batteries.  If you have a yen for punting, this stock may be as good as any, given the projected demand for EVs in the future and the batteries that power them.  However, punters have been crushed in the past when potential fades away.  Remember 1Page Limited?  
Graphitecorp debuted on the ASX in 2015, posting a loss of $1.2 million in its first year, which ballooned to $6.1 million.  Novonix is carrying a debt load, as of the most recent quarter, of $9.2 million against total cash on hand of $2.4 million.
The second is Phoslock Water Solutions (PHK), a company with a promising technology for water quality management in lakes, reservoirs, and ponds.  The company has a strategic agreement for the design, engineering, application, and maintenance of water remediation solutions in rivers, canals and lakes across China with Beijing BHZQ Environmental Engineering Technology Co.  Phoslock did report revenues of $3.8 million in FY 2017, but posted its third consecutive loss.  While many market experts view water as the new gold, the company has gearing at 92%.  Long-time investors know “strategic agreements” can fall by the wayside.  Despite the risks, both these stocks are up more than100% over the last year. 

For the prudent investor, the four profitable stocks presenting at this conference merit consideration.  The following table lists them alphabetically.

Empired Limited (EPD) is a provider of a wide range of IT services to industry and government. Services fall into three broad categories; Application Development & Consulting, Business & Productivity Solutions and Cloud & Infrastructure Services.  The company employs the latest technology from Microsoft in everything they do.
Empired has made the coveted Deloitte Technology Fast 50 Leader lists for the last two years, ranking 38th overall and fifth in the leadership category in the 2016 listing released last November.  The company operates in Australia and New Zealand with some operations in the US as well.
Empired has grown revenues in each of the last five years.  However, net profit fell from $5.3 million in FY 2015 to a loss of $1.7 million in FY 2016 but rebounded to a profit of $3.2 million in 2017, despite slow growth in the US.  Management has made changes to the US operation and expects improved results in FY 2018. 
Financial technology company Hub24 Limited (HUB) offers a high-tech, award winning software platform that offers its uses a fully integrated approach to managing and tracking investment and superannuation assets. The company began in 2007 and got swamped in the wake of the GFC but has seen a steady recovery in the share price over 10 years, with massive gains over the last five. 

In late 2015 the company rejected a takeover offer from larger rival IOOF Holdings Limited (IFL). For FY 2015 the company reported revenues of $28.7 million, increasing 50% to $43.3 million in FY 2016, while reducing its 2015 loss of $6.5 million to $1.3 million to $1.2 million.  FY 2017 was a breakthrough year with revenues expanding to $62 million while profit came in at $18.9 million.  Medical device provider Lifehealthcare Group Limited (LHC) debuted on the ASX in December of 2013.  The company offers capital equipment devices used continuously, such as operating tables, surgical instruments, and ultra sound devices; implantable devices such as joint prostheses; and disposable devices such as certain surgical instruments and suction devices.
All in all, the company offers devices in 13 different therapeutic areas, from orthpaedics to cardiology. Lifehealthcare Group has a trailing twelve-month (TTM) P/E of 15.81, well below the 18.98 average for the healthcare equipment sector, and pays a fully franked dividend with a current yield of 5.2%.
The share price was on a tear until early 2016 when concerns over government pricing regulations on some of the prosthetic devices the company sells sent investors for the exit doors, only to begin slowly returning.  

The impact was less than feared as the company reported revues of $126.7 million in FY 2017, up 10% from 2016 revenues of $114.8 with profit declining slightly from $7.5 million in FY 2016 to $7.1 million in FY 2017.  In addition, management sees minimal impact on revenue through 2020, with a quarterly low of 0.3% and a high of 1.3%.
Money3 Corporation Limited (MNY) is a financial services provider specialising in short term arrangements, largely focused on the segment of the population where traditional financial sources may be unavailable.  Services range from small cash loans, rental financing, vehicle financing, cheque cashing, and international money transfer. 
The company has grown both revenues and profit substantially over the last three years, with reported revenues in FY 2015 of $68.9 million; $96.4 million in FY 2016; and in $109.6 million FY 2017.  Profits of $13.9 million in FY 2015 rose to $ 20.1 million in 2016 and $29.1 million in FY 2017.  Money3 pays a fully franked dividend with a current yield of 3.6% and features a stellar trailing P/E of 8.56, about half of the average P/E for the diversified financial sector of 16.68.  The company’s average growth performance is impressive as well, with earnings growth over 10 years of 18.2% and 26.3% over five years.  As was the case with Lifehealthcare, the Money3 stock price took a jolt from the spectre of government regulatory oversight into the small loan industry beyond the measures put into effect in 2013. 

The stock price took another dip in early 2017 following the release of the company’s Half Year Results, where investors eager for a dividend increase saw dividends remain flat while profit was up significantly – 37.7%.

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