Buy Hold Sell: 5 industry-leading micro caps

When you think of industry leaders, large caps probably come to mind. Think iron ore giant BHP, biotechnology behemoth CSL, or global logistics software provider WiseTech. 

But that's not to say there aren't bourgeoning industry leaders within the micro-cap end of the market. In fact, many small stocks have already made a name for themselves, and have become the go-to for their products and services on the global stage. 

So in this episode, Livewire's Chris Conway was joined by 1851 Capital's Chris Stott and Yarra Capital Management's Joel Fleming for their analysis of three micro-cap stocks making serious strides. 

Plus, our fundies also each name one micro cap with an enviable market position. 

Note: This episode of Buy Hold Sell was filmed on Wednesday, 14th September 2022. You can watch the video, listen to the podcast, or read an edited transcript below.

Edited Transcript 

Chris Conway: Hello, and welcome to Livewire's Buy Hold Sell. My name is Chris Conway, and today we are looking at five microcaps with big ambitions, and some of them may in fact already be leaders in their space. I am joined by Joel Fleming from Yarra Capital Management and Chris Stott from 1851 Capital. Thanks, gents, for being here. 

The first stock we're going to talk about is PWR Holdings. These guys provide cooling systems for race cars, F1, V8 supercars, and the like. It hit a low of around $5.50 in June, and it has recently been trading back towards 10 bucks. So is it a buy, hold, or sell? Joel, we'll start with you.

PWR Holdings (ASX: PWH)

Joel Fleming (BUY): It's a buy. A classic small cap compounding story. It's founder-led, focused on driving long-term value, operates in a niche, world-class, and layers of optionality in terms of its growth.

Chris Conway: Chris, what about you? Is it a buy, hold, or sell for PWR? 

Chris Stott (SELL): Sell for us. I'd agree with all of Joel's comments there, but the valuation at 41 times PE and the strong rise in the share price up almost a hundred per cent over the last few months keeps us on the sidelines for now. So sell.

Frontier Digital Ventures (ASX: FDV)

Chris Conway: Chris, we'll stay with you. Frontier Digital Ventures. These guys partner with local teams, and they build online marketplaces in emerging markets. Is it a buy, hold, sell for you?

Chris Stott (BUY): Buy. Run by Shaun Di Gregorio, proven operator at REA and iProperty Group, previously. The sum of the parts is way north of the current share price, underappreciated by the market. So a strong buy for us.

Chris Conway: Joel, what about you? Frontier Digital, is it a buy, hold, or sell?

Joel Fleming (SELL): It's a sell for us. Very high regard for management, really believe in the structural theme, emerging markets. There's just too much risk in the current environment.

Playside Studios (ASX: PLY) 

Chris Conway: Joel, we'll stay with you on Playside Studios. These guys make video games for the likes of Disney and Warner. Is it a buy, hold, or sell?

Joel Fleming (HOLD): It's a hold for me. I really like the industry. I like the split of business, and the people involved. But just like to see some more traction in the business model before becoming more positive.

Chris Conway: Chris, for you? Playside Studios, is it a buy, hold, or sell?

Chris Stott (HOLD): Hold, very similar to Joel. Interesting business. It's well funded, with $30 million or so of net cash on the balance sheet. You suspect the earnings go backwards this year a little bit as they reinvest back into the business. So again, I'd like to see more runs on the board, as Joel mentioned there. So hold.

IPD Group (ASX: IPG)

Chris Conway: We've asked our fund managers today to bring along a small cap that they think is already a leader in its space. Chris, we'll stay with you. What is a leader that you've brought along for us today?

Chris Stott (BUY): IPD group. So IPG is the ticker. It's an electrical distribution business. It's on a PE of 12, growing very, very strongly at 15 to 20%. It's exposed to the EV car charging thematic, so they sell car chargers as well as service those particular machines down the line. So we think that one's undiscovered, underappreciated, and upgrading its earnings with a good balance sheet. So buy for us.

RPMGlobal Holdings (ASX: RUL)

Chris Conway: Great. And Joel, what about you? Have you got something that can better that?

Joel Fleming (BUY): RPMGlobal for me. Quite well-known software for the mining industry, great balance sheet. It's had an inflexion point, changing its business model from perpetual to subscription licences. A lot of M&A in the sector. It's a buy.

Chris Conway: That's all we have time for today. We hope you enjoy this microcap episode of Buy, Hold, Sell. Make sure to subscribe to the YouTube channel. We're adding great new content every week.