Pointsbet, Nearmap and Appen were among the stocks that made it to the Livewire readers’ 10 most tipped small-cap list for 2020. If you missed it, this list singled out the small-caps that received the lion’s share of the 7,000 tips from our annual survey.

In our inaugural Buy Hold Sell episode for the year, we brought together Jun Bei Liu from Tribeca Investment Partners and Matt Williams of Airlie Funds Management to cast their expert eyes over these three picks from the readers.

Watch the video to see whether they passed the litmus test, and to hear about which payments company and consumer cyclical business Jun Bei and Matt are backing, respectively, as their own favourite small-caps for 2020.

(Ed Note: This episode of Buy Hold Sell was filmed on Wednesday 29th Jan)

Transcript

Vishal Teckchandani: Welcome to Buy, Hold, Sell brought to you by Livewire Markets. My name is Vishal Teckchandani and today we're going to discuss three of the most tipped small cap stocks among Livewire readers and two of the fundies' favourites. Joining me on the panel is Jun Bei Liu from Tribeca Investment Partners and Matt Williams from Airlie Funds Management. Matt, let's start with you. Pointsbet Holdings, online bookmaker looking to scale massively in the US, buy, hold, sell?

1. Pointsbet Holdings (ASX:PBH)

Matt Williams (Hold): Look I think it's a hold. It's on the ground running early in a very interesting market. The scale of the opportunity, it's quite amazing, opening up of wagering sports betting in the US so you only have to extrapolate what's happened here to the US and get some really large numbers and they're in there early. They've done some good partnerships, but I think there's a lot of money to be spent, a lot of capital needed to win customers. There'll be big players in there trying to fight it out. I know the principles around the Pointsbet business and I think because of this, I hold them in high regard despite the great run the stock has had, I think it's just a hold but it's got some great people and it's a moonshot and hopefully they make it.

Vishal Teckchandani: Okay. Jun Bei is Pointsbet worth a bet?

Jun Bei Liu (Sell): I'm trying to find a nicer word. That's definitely a sell for me. Look if you participated in the IPO and any of those equity raising you've done incredibly well but you'd be taking profit. Now, this company, it's done well. In the middle of its land grab of breaking into this online betting, sports betting the US market where legalisation of the online sports betting just started opening up and they are spending, as Matt talked about before, spending so much money on just land grab, buying customers and that is a lot of money. And so they need the share price to be really high so they can raise more money and then they buy more customers. Because at this point, if they stopped spending tomorrow, I don't know if that business model is going to be viable at this point.

And they come across and they're competing with some of the really large fantasy sports guys where they already have a fan base. So it's just hard to see at this point how the business model is going to be sustainable by itself. So the best bet is hoping someone would take them out. Maybe? But it's a sell for me.

2. Nearmap (ASX:NEA)

Vishal Teckchandani: Fair enough. All right. Staying with you. Jun Bei, Nearmap, geospatial mapping technology. Buy, hold, sell?

Jun Bei Liu (Sell): I'm sorry I have to say this. It's a sell for me too. I like the company. I think they've done an amazing job in the Australian market gaining great traction in the like. You probably value that for about a dollar and the rest of the share price valuation is really linked to the US market where they've gone in again, they're spending a lot of money trying to gain traction and we won't see how that's going until obviously another 12, 18 months to see how that's going. Company's not cashflow breakeven simply because of that investment they’re making. And my biggest concern is what if the large guys, mapping guys like Google decided to go down this route. Obviously, they talk to specification, speciality and the like. But if it does happen, I'm just not sure how sustainable is that competitive advantage.

Vishal Teckchandani.: Okay. Matt, how do you feel about Nearmap?

Matt Williams (Sell): Yeah, look, I agree with Jun Bei on this one. I think the market prices adhere like there's no competition. I think there will be big competition. We've already seen one list recently as a competitor. It's a sell for me.

3. Appen (ASX:APX)

Vishal Teckchandani.: Okay. Something that is profitable is Appen, one of the core WAAAX stocks, had a terrific year last year. Buy, hold, sell?

Matt Williams (Sell): It's a sell for me over 40 times earnings. Look, I know it's in the sweetest of sweet spots with some of the best customers you'd ever want to have and potential to get even a bigger FAANG stock as a customer. Yeah look, it could drive further growth, but there's some risks overhanging it in terms of the way they contract with the people that work for them, if you like. By that I mean contractors, there's a risk around California law on that. So I would look at 40 times earnings, not for me.

Vishal Teckchandani.: Okay. Jun Bei, how do you feel about Appen?

Jun Bei Liu (Hold): With Appen at least it makes money. It's trading on a PE growth ratio of one time. So I think it looks pretty good. So it's probably a hold for me. The growth is still phenomenal, but it is like a contractor so margin over the long-term will probably have to come down. Biggest concern at this point is really the acquisition they made, the big acquisition they made in which they're hoping to generate all these ongoing revenue seems to be sort of tracking a little bit behind. So we need to see at the result time that's tracking better than expected. Then you can ask, I probably would move to a buy.

Vishal Teckchandani.: Okay, so let's get some buys in here. What's your fundie favourite? What's your top small cap for 2020?

4. Tyro Payments (ASX:TYR)

Jun Bei Liu (Buy): My top small cap, it's not yet in the small cap, so it's Tyro. Now Tyro is a fintech. It offers a point of sale payment system to SMEs. It's an enormous market. The payment market is growing at high single digit and Tyro has been taking share from the big banks, which has traditionally played in that space. Tyro's revenue has gone up more than threefold and really just at the moment only two and a half percent of that whole market share that is also in the market that's growing really fast. So we think it will do very well. And guess what? Also in the next couple months, this stock at 1.8 billion dollars market cap is very likely to be, or at least it's a very strong contender, for the ASX 300. That's the small ords, so by then it may well be qualified to be a small cap.

5. Nick Scali (ASX:NCK)

Vishal Teckchandani: And Matt, what do you reckon? What's your top small cap pick for 2020?

Matt Williams (Buy): Look, it's been my top small cap pick for quite a number of years and it shows the market we're in. This company had a bit of a profit warning before Christmas and the share price is way higher than back after that. So it's Nick Scali, the furniture retailer and I've known this company or followed this company since 2003 which shows you how long in the tooth I am. But it's been a great performer over a long period, but it's not a shoot the lights out kind of a company. It's a steady Eddie grower. We think it's got a good store roll out plan still to go. It pays a great dividend and it's run by a really passionate owner managed CEO in Anthony Scali.

Vishal Teckchandani: Well, you heard it from the experts. Livewire readers may be punting some of those most tipped small cap stocks, but our experts reckon you've got to tip some of them out for fresher ideas.

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