3 small caps powering Ryder Capital’s double-digit growth and fully franked dividends

A smart investor once told me that the best place to look for ideas was in the uncrowded room. Right now, on the Australian market, it's fair to say that two uncrowded rooms are in the small-cap industrial part of the market and listed investment companies (LICs).

Small industrials have underperformed the small-cap index by 9% in FY26, and the LIC sector has been out of favour for years, with persistent discounts.

​But just because a room is uncrowded, it doesn't mean it can't present an opportunity. That's the view of Ryder Capital Portfolio Manager Lauren De Zilva, who actively reviews situations in which bad news or, in some cases, market quirks create compelling investment opportunities.

​Ryder Capital started out in a completely unique fashion. Single-stock ideas were sent to a small group of investors, with fees payable only on an outperformance hurdle. The founders were co-investors, and the strategy's success soon meant the administrative burden became too large. Those single-stock ideas or that co-investment programme required a different structure, hence the birth of Ryder Capital Limited (ASX:RYD).

​Today, Ryder manages a concentrated portfolio of just 20 - 25 stocks, with 10 typically making up 70-80% of the portfolio. It sounds risky, but valuation discipline is at the core of the investment process - minimise downside risk in order to maximise compounding.

​Ryder Capital has just clocked up its third consecutive year of 25% plus returns, and has been paying consistent, growing dividends since 2018. Ryder Capital is paying a 6.9% fully franked dividend yield, with dividends paid quarterly and, at the current level of 12 cents per share, covered for the next five years.

​In this episode of the Rules of Investing, Lauren explains how Ryder looks for mispriced opportunities and the thesis behind the firm's largest portfolio holding. She also shares two small-cap investments that meet Ryder’s disciplined investment process.

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Time codes

• 0:00 - Introduction to Ryder Capital Limited (ASX:RYD)
• 4:44 - From mining exploration stocks to disciplined value investing
• 7:02 - The best time to invest is when stocks are out of favour
• 9:24 - Finding just 20 stocks from the universe of small caps
• 12:01 - Using bad headlines to find good investments: Symal (ASX:SYL)
• 14:40 - Stock story: BCI Minerals (ASX:BCI)
• 25:08 - Stock Story: Chrysos (ASX:C79)
• 29:35 - Managing a highly concentrated portfolio
• 32:29 - Holding periods and liquidity
• 35:04 - Capital growth and growing fully-franked dividends
• 37:46 - A big win / loss: Service Stream (ASX:SSM)
• 40:34 - Not all software companies will be AI losers: Fineos Corporation (ASX:FCL)
• 43:00 - The stock Lauren would own if markets shut for 5 years: Cuscal (ASX:CCL)

BCI Minerals (ASX:BCI): A long-term investment and a core holding

The largest holding in Ryder's portfolio is BCI Minerals (ASX:BCI) - Ryder is the third largest shareholder behind the Stokes family and AustralianSuper. The Company operates in the north-west of Western Australia, an area typically known for its large iron ore developments, but BCI is on a different path. It's building a salt project, which will be the first to come online in Australia in 30 years.

​The underlying thesis is supported by a widening supply-and-demand gap, as the construction of new projects fails to keep pace with GDP-linked growth in salt demand.

The project requires significant development investment, a scenario the market typically doesn’t like; however, with the project nearing completion, De Zilva believes the stock is approaching an inflection point.

​“Next year, we're going to reach first production and first cash flow. When we think about what that ramp-up could look like at full run rate, we estimate that BCI could generate $300 million in post-tax cash flow. It's got a market cap today of just over a billion dollars. So we think that over time, as BCI starts to generate that free cash flow, the share price should rise towards a more appropriate yield.”

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How adding salt to our portfolio is creating long-term value

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Finding mispriced opportunities

A key part of the Ryder Capital investment process is identifying mispricing stemming from bad news or market anomalies. Stocks trading at 52-week lows, poor-performing IPOs and capital raisings have proven to be sources of opportunity.

She calls out civil infrastructure and construction company Symal Group (ASX:SYL), which was listed in November 2024, as an example in which the stock traded 20% below the listing price despite strong underlying business performance. The stock is relatively illiquid because 60% of the register is held by three of the company's directors, and the selling, De Zilva explains, did not reflect the underlying fundamentals.

​“The business was performing really well. They actually ended up beating their prospectus numbers that year.”

“As an investment, it met a lot of our key criteria. A good balance sheet, profitable, generating cash, really strong earnings growth profile and strong alignment from the management and board with that big ownership position and industry tailwinds.”

Ryder continues to hold the stock and believes it is well-positioned to benefit from infrastructure growth and electrification, and they've got a really differentiating self-performed capability compared to other contractors in the market.

The stock Lauren would own if markets shut for 5 years.

If markets were to shut for 5 years, De Zilva says she’d be happy to hold onto a business exposed to digital payments. Her pick is Cuscal (ASX:CCL), an independent provider of end-to-end payment solutions that offers access to payment infrastructure for smaller banks and fintechs.

​A key premise of her thesis is that Cuscal’s model is volume-based, not total transaction value (TTV). Payment volume is growing steadily as consumers choose to split transactions. In addition, De Zilva says two recent acquisitions provide the business with further growth opportunities over the medium term, including expansion into New Zealand.

“Backed by a great management team, a history of paying regular dividends, and a high likelihood of entering the ASX 300, this is a stock we feel incredibly good about for defensive growth. Even if the broader market shut tomorrow, I would be completely comfortable owning this one for the next five years."