Buy Hold Sell: 3 future ASX leaders (and 2 the fundies are backing)

It’s easy to forget that many of today’s ASX blue chips – household names like CSL, REA Group and WiseTech – started life as small-cap stocks. While they may have flown under the radar at the time, patient investors who could spot their potential early on have been handsomely rewarded.

In this episode, we’re diving into the world of small caps, where volatility runs high, but the rewards can be even higher. 

More specifically, we’re exploring how to separate the true long-term compounders from the companies fueled by hype, rather than fundamentals. Which business models are built to last? Which leaders have the vision and execution to deliver real growth? And what signs suggest a small company could one day play in the big leagues?

To help us tackle these questions, Livewire's Chris Conway was joined by two seasoned investors who know the small-cap landscape inside and out: Emanuel Datt from Datt Capital and Michael Steele from Yarra Capital Management. 

For good measure, they each share an ASX name they are backing to become the next big thing. 

Please note this episode was filmed on 7 May 2025.

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Edited Transcript

Chris Conway: Hello and welcome to Livewire's Buy Hold Sell. My name is Chris Conway. Many of today's blue chips started as small caps. This episode focuses on how small caps can be a breeding ground for tomorrow's industry leaders, and how to separate the growth stories from the hype. Joining me is Datt Capital's Emanuel Datt, and Yarra Capital's Michael Steele. Gents, welcome.

Emanuel, I'll come to you first. The key traits of a scalable small cap growth business, what are they?

Scalable small caps

Emanuel Datt: When you say scalable, to me that means that the business has the ability to maintain a certain level of fixed costs whilst growing the top line. Effectively, the way these come about is typically a company would have a certain edge, perhaps it might be in distribution, as we've seen in distribution businesses for various products, or it could be some technological advantage. So effectively, at a high level, that's what a scalable business looks like in my view.

Chris Conway: Very good. Michael, what about you?

Michael Steele: Agree with a number of Emanuel's points. And in particular, a scalable business has a large addressable market, so ideally have a product or service that could be in demand on a global basis, and a market that's growing. To Emanuel's point, ideally they have high incremental margins where revenue growth is well ahead of cost growth and that'll lead to operating leverage and higher earnings growth. And also a business that has low capital intensity, so there's reduced probability of needing to raise additional shares and you get that leverage from the capital base as well to support the high earnings growth.

Ability to fund growth

Chris Conway: Yep. Just leveraging that point that you just made, Michael, how important is it that a business, a small-cap business, can fund its own growth rather than tapping the market?

Michael Steele: Ideally, a small company would be able to fund its own growth, and that would increase the total return potential. But there are examples where a company can deploy capital and get very high returns on capital, so that can still be a credit for the growth, even if they need to raise additional shares. So good examples of that could be companies like Pinnacle and AustBrokers, where they acquire a business, they add a significant amount of value to that business, it generates a high return on capital, and that adds to the growth profile.

Chris Conway: Yep. Emanuel, thoughts on that? Funding their own growth or raising capital, what do you prefer?

Emanuel Datt: Yeah, look, I agree with Michael. I think that as long as the team... let's just say if they raise capital, if they're able to reinvest that capital at significantly higher rates, then we have no problem with it. However, capital discipline is a mark of quality and execution is one part of that, ultimately. Obviously, as a shareholder, I would have a bias and preference towards not being diluted, but then there are instances where it's for the greater good.

Premier Investments (ASX: PMV)

Chris Conway: Very good. All right, we'll shift gears, ladies and gentlemen. We're going to talk about some of these small caps that are very interesting right now. First up is Premier Investments: it could be argued that it's already a leader in Australian retail, more than 1,100 stores and some brands like Smiggle, which my 10 and 5-year-old boys seem to spend a lot of my money on, so they're getting their pound of flesh out of me. Emmanuel, for you, is this one a buy, hold or sell?

Emanuel Datt (HOLD): Premier is a hold for me. I think that Premier is one of those great retail businesses that has a truly global and addressable market. I think the recent deal with Myer was a really significant game changer for the portfolio, and it really does lead me to believe that at some stage the flagship brands of Smiggle, that's so well-loved by children all over the world, and even Peter Alexander could be spun off in time. Smaller brands like this, when they're spun off, it allows the management teams to spread their wings a little more and perhaps pursue international growth more aggressively than perhaps they would've been allowed to do, being a wholly-owned subsidiary. So there are lots of things to like about Premier, valuation is obviously one other aspect, that's why we're a hold on Premier.

Chris Conway: Michael, down 20% year-to-date, has had a bit of a rocky run in recent months. How are you feeling about it, buy, hold or sell?

Michael Steele (HOLD): Agree with Emmanuel that Premier is a hold. When you look at Premier's core businesses of Smiggle and Peter Alexander, they've been very successful in Australia, as we've already referenced. Our concern though is they're unproven and it's still risky around their growth potential internationally, and the market is placing a full value on their ability to expand internationally and we think that's quite risky.

As Emmanuel referenced, the transaction with Myer was really quite positive around effectively exiting some of the other apparel businesses, so the earnings quality has been improved. The other major factor with Premier is their 25% ownership in Breville, and Breville is an extremely compelling global growth opportunity, but we'd prefer to own that company directly in Breville rather than owning the Premier Group.

Bravura Solutions (ASX: BVS)

Chris Conway: We'll talk about Breville in just a moment, mate. So some nice foreshadowing there. Before we get to Breville though, we're going to talk about Bravura. I've got to make sure I get these names right, they're very close. Software company, focusing on wealth management and funds administration. Michael, I'll come back to you, buy, hold or sell?

Michael Steele (HOLD): Bravura's a hold. Bravura's struggled to grow revenue in recent years and our concern is it'll remain difficult to grow revenue going forward. Bravura's in quite a mature industry where there's low customer turnover and churn, so it's really quite hard to attract new customers, and they've got some really strong competitors in this market that are doing a good job.

The other fact with Bravura is, if you look at the earnings growth over the last couple of years, it's all been around margin expansion, taking costs out. Now, that can only go so far. And our concern would be to really grow revenue sustainably, there may well be the need to put more costs back into the business and reinvest. And the other factor supporting the hold is we've had recent management changes and clearly there's some uncertainty around the strategy going forward.

Chris Conway: Yep. Emmanuel, up 122% over the past year, so it's had a pretty impressive run. I think this one's still got more in it, buy, hold or sell?

Emanuel Datt (BUY): Yeah, I would call Bravura a buy. And why that is because, as Michael mentioned, there are many positive aspects to the business. However, we are probably taking a more bullish view in terms of revenue growth. We know there's a number of products that they've improved. They've suddenly become a lot more disciplined in terms of cutting costs out and being more disciplined with their capital, which we like. But it would be remiss not to broach the topic that the largest shareholders, basically the family office of one of the world's great software consolidators of the world, Constellation Software, and one of their associates, is now interim CEO for an interim period. And yeah, I think that, in itself, is very interesting and I believe it trades at a fairly modest multiple compared to overseas comparables.

Breville Group (ASX: BRG)

Chris Conway: All right. Next up, we are now at Breville. Now who doesn't love a toasted cheese sandwich? If you've had one in the last week or so, chances are it was on a Breville sandwich maker. It's a great Aussie success story. Emmanuel, buy, hold or sell?

Emanuel Datt (HOLD): Breville would be a hold for me, Chris. Why that is, great Australian success story over many years, but when it comes down to it, they sell small kitchen appliances. And to me, their moat has really been around the innovation and making professional style coffee at home at an affordable price. That's been the big win of theirs recently for one of their products ranges. I should say, it's not the only product range. That level of product innovation, I think it can go so far. However, I just believe there's heavy competition in the space as well. So consistent innovation is a necessity and you've got to keep nailing it basically. So that's why I call it a hold.

Chris Conway: Michael, down 18% year-to-date. Maybe Aussies are off their toasted cheese sangas. I doubt it though. Buy, hold or sell for you?

Michael Steele (BUY): Breville's a compelling buy for me. There's no doubt there's some short-term risk around what's happening with tariffs and that's creating a great buying opportunity for long-term investors. There's clearly some short-term earnings risk from the tariff uncertainty, but if you take a longer-term view, they will be able to move manufacturing to other countries, and get around the tariff risk. And potentially in this market disruption, they can grow some market share as well.

Their core business in coffee really is quite an attractive market. There's quite defensive growth. They're positioned at the premium end of that market and they're taking market share within their existing countries, and there's a big opportunity to expand it into additional countries as well. It's a business where there's a highly sustainable cost base. They've invested significantly, including during COVID, into the product quality and also marketing, and they're still seeing the benefits from that. It is a capital-light wholesaler, where you generate strong free cash flow and that'll support the balance sheet going to net cash in the next six months.

Guest picks

Chris Conway: Ladies and gentlemen, one of my favourite segments of any Buy Hold Sell episode, we ask the gents to bring along some stock picks. This time we're differentiating real growth from story stocks. Michael, I'm going to come to you first. What's a real growth stock?

Pinnacle Investment Management (ASX: PNI)

Michael Steele: A real growth stock is Pinnacle Investment Management. Pinnacle is a diversified fund manager, so there's low-key person risk. They're diversified by asset class and style, and also have unlisted managers as well. If you look at their existing fund managers, they've got significant growth potential. And our view is they can more than double their assets under management, supported by the capacity in those products and the strong performance track records they've developed.

The place where they've arguably added more value though is adding additional fund managers over time, both organically or doing startups or team lifts, and also acquiring businesses. And they add significant amount of value by providing the back office services and also distributing the products.

What's truly unique though is the ownership model where the fund managers themselves own the majority of the equity. So you've got very strong alignment of interests around shareholders over the longer term, and also where the fund managers think they should go in the longer term as well.

The other step change growth potential is international, where they're looking to source capital from international investors and also add international fund managers.

Chris Conway: Emmanuel, pretty strong pick from Michael. What have you got for us?

Siteminder (ASX: SDR)

Emanuel Datt: So Siteminder provides electronic distribution and revenue management tools to hotel and accommodation providers. So it provides an almost infrastructure-like exposure.

What's really attractive about Siteminder is the diversity of its client list; it's really a very long tail of clients effectively. And it's definitely proven its ability to increase the intensity of its monetization over time. While it's been listed, for instance, it's been able to grow its top-line revenues by double-digit percentages each year, which is a very good achievement, combined with the fact that it's been able to control costs as well. It is probably at the inflexion point of breaking into that cash flow positives after all-in costs, so I think that in itself is very attractive and we think that there's a strong growth path ahead for the company itself.

Chris Conway: Very good. Well, there you have it, ladies and gentlemen. Two serious growth stories, not just the hype that you might get somewhere else. Thanks to Emmanuel Datt from Datt Capital and Michael Steele from Yarra Capital Management. If you enjoyed that episode of Buy Hold Sell, make sure to give it a like. And don't forget to follow our YouTube channel, we're adding lots of great content every single week.