How to buy something for nothing on the ASX (2 strategies, 3 stock ideas)

Everyone wants a sure thing - a single investment idea that is guaranteed to go up and to the right, in a straight line. While they are easy enough to spot in hindsight, typically the people who own them own a range of other investments, with a variety of risk/return payoffs, some of which work out as planned, while others underperform expectations. In fact, some of the most successful investors in history have win rates under 50% (that means most of their trades lose money), and it is only in the aggregate that they’ve been able to succeed.

When breaking down our peer-group leading +28.3% return in the Seneca Australian Small Companies Fund over the last 12 months, people assume the attribution was from one or two big winners – a Big Short style investment (we have an idea and bet big on it).

As my colleague Luke Laretive discussed in this Livewire podcast, good investing to us is more like Moneyball. We aim to own a portfolio of companies with asymmetric payoffs—like in Moneyball, we want to invest in stocks that can deliver what we need for a fraction of the price.

A big part of identifying these asymmetries is finding optionality—can we pay a fair price for a good asset but simultaneously acquire an equally attractive asset for free?

These opportunities persist in markets due to behavioural biases that make investors unwilling to reassess them in light of new information. Add to this the skewed incentives of professional investors and sell-side analysts—driven by career risk, reputation management, and corporate relationships—and you get a system inherently resistant to change. Because change is hard to quantify, it’s often ignored. As a result, blue-sky optionality—new products, new markets—is often heavily discounted and, sometimes, mispriced.

Our portfolio is like the Oakland A’s – a little island of 30 or so misfit toys. Companies whose value is not fully appreciated by most investors yet, because they haven’t looked at it the right way. Some of this value might not be realised today, some may never be realised, and we will cut our losses and move on, but in the aggregate, at the portfolio level, we believe our 'system' can consistently win.

So, with our ‘Moneyball’ approach in mind, here are 2 (of the 10) ways to buy something on the ASX for nothing and on the back of our IP, build a bit of asymmetry into your portfolio.

1. Hard asset backing with cyclical profit inflection

Case Study: MMA Offshore (ASX: MRM)

The old Mermaid Marine was a classic example of hard asset backing; the company owned 20 tugboats servicing the offshore energy sector. A market darling from 2005 to 2013, investors 10-bagged their money. However, operating leverage works in both directions. On the back of extreme leverage in a declining demand environment, the share price collapsed from $24 to less than 30 cents, burning professionals and punters alike.

Discarded by the entire market, the eventual turnaround in market conditions was largely ignored, leaving MRM with exceptional cash flow and an insanely cheap valuation.

As we explained here, it was cheaper for competitor Cyan Renewables to acquire MRM for $2.70 than miss out on part of the cycle due to a lack of vessels.

MMA Offshore is not an isolated example. A similar story unfolded with Austal (ASX: ASB), a shipbuilder exposed to the cyclicality of defence spending and capital-heavy project risks. ASB traded at a 35% discount to NTA before re-rating to a significant premium as confidence in its path back to ~6% ROE (historical average) grew. It now trades at an 85% premium to the $2.825 per share offer made by Hanwha in early 2024—just a 1.6% premium to book value at the time.

How to apply and make money today

Emeco (ASX: EHL)

Emeco is exactly the same setup as MRM, (just on land).

Emeco is a specialist mining equipment rental company, often referred to as a "yellow kit" business due to its fleet of heavy earthmoving machinery used in mining operations. EHL trades at a 41% discount to net tangible assets (NTA), after being relegated to the investment equivalent of ‘the doghouse’ after a failed foray into mining services – acquiring Pit N Portal in Jan 2020, and then sold the business unit for a loss in Dec 2023.

This deviation from its core equipment rental & maintenance business into riskier, capital-intensive mining services projects was a misstep and lacked the scale advantages and attractive margins offered in the core equipment rental and maintenance business.

NTA has been steadily rising, driven by returns on Emeco’s mining equipment fleet that exceed depreciation, alongside strong cash flow that’s being used to reduce debt and improve business quality. In 1H25, NTA increased 5% to $1.28, and we forecast it to reach $1.35 by FY26—versus a current share price of $0.75.

This disconnect persists despite improving profitability metrics over the past 18 months, including higher utilisation, return on assets and EBITDA margins. This has been driven by strong demand for equipment from new mining projects.

In our MRM case study above, the opportunity arose at the bottom of the cycle, when the fundamentals were ahead of the market’s scepticism. MRM moved from being priced on:

1. Bottom of the cycle: A steep ~50% discount to NTA (EHL in 2023).
2. First green shoots: a narrower ~20-30% discount to NTA, as the market regains some confidence in the cycle and that the business is not a going concern.
3. Cyclical Upswing: ~1.0x NTA, with the asset value now being recognised.
4. Peak: a cash flow / earnings multiple. Here we see earnings streams capitalised at 'mid-cycle' multiples of ~6-8x EBITDA. This is where we ideally want to be selling.

EHL is seeing those first green shoots right now. We aren’t concerned about timing the bottom perfectly, its only ever apparent when the bottom was long after its come and gone. We see our risk here as not owning enough when phase 3 arrives, earnings are upgraded (potentially the August FY results) and we start seeing more articles about the company in the AFR and on Livewire.

Our recent meeting with management reinforced a constructive outlook—high utilisation continues to drive strong returns on capital, and a handful of simple operational improvements could drive material margin improvements. While most others remain suspect, we are confident in the management team’s ability to execute, for no real reason other than, they already are… Profit margins have risen for four consecutive halves.

The Steak Knives

Another hidden gem in Emeco's business is its maintenance division called Force (repairs, component rebuilds and replacements at workshops). If you've driven around in Western Australia recently, you'll have seen these Force trucks everywhere, just like we saw with Mader (ASX: MAD) trucks 10 years ago. The split of revenue is currently 71% rental revenue, 29% Force maintenance revenue.

This high visibility, repeat maintenance revenue complements Emeco's core equipment rental business well but typically attracts a higher market multiple due to its high visibility, repeat nature, and lower capital intensity. MAD trades at 19x P/E vs. EHL at 5x.

What about commodity prices?

Commodity prices that Emeco is exposed to (Metallurgical coal, gold, iron ore, thermal coal, copper) have been relatively resilient over the same period. We created a custom index weighted to those commodities to illustrate this below.

The stock has experienced some weakness recently, perhaps following some wet weather on the east coast, which can disrupt production where Emeco has gear deployed in coal mining regions. However, we believe this wet weather has largely avoided Emeco’s exposure, hitting the coast further south.

Some short-term concerns about excessive rainfall in Australian coal-producing regions on the East Coast of Australia. We have spoken with the company and assessed minimal impact on operations, with heavy rainfall regions falling further south than the majority of Emeco's operations.

"Once bitten, twice shy" 

Following the (management self-confessed) failed foray into underground mining services, investors have been reluctant to look at Emeco. The headline figures understate the improvement in Emeco's business, which combines a tightened cost base with increasing equipment rental. While total revenue declined in FY24 due to weakness in the now-divested underground services, equipment hire grew 10%, underscoring the strength of its core rental operations.

Emeco is a key pick into the full year reporting season in August 2025, with potential for Emeco to put out a trading update ahead of the result (like it did in 2023), allaying short term market concerns and reiterating the strength of the company's outlook, and re-rating closer to its $1.20 fair value.

Bonus pick: Aquirian (ASX: AQN)

Aquirian is a founder-led, drill-and-blast specialist in the mining sector—capped at just $30 million, it's flying under the radar but primed for explosive growth (pun intended). Think of Aquirian as a "mini Orica".

Backed by a highly aligned management team with deep industry experience (33% insider ownership, ex-Orica leadership), Aquirian acquired the Wubin emulsion explosives facility for just $9.6 million in March 2024. The facility is essentially brand new, built in 2020 but barely operated, and acquired from a South Korean conglomerate, Hanwha, after a decision to exit Australian mining services at the corporate level (Orica bought their other two facilities). Current AQN management were heavily involved with the facility under previous ownership, so know it well. We estimate the facility’s replacement value at approximately $20 million, including freehold land and plant & equipment.

Drill and blast is the primary method for breaking hard rock in mining and construction—drill holes are filled with explosives and detonated to fragment rock for excavation. It’s widely used in iron ore, gold, and coal mining, as well as quarrying and civil projects. Major WA iron ore operations like BHP’s South Flank depend on this technique—watch it in action here.

Major miners are focused on retaining steady production volumes against a backdrop of increasing strip ratios (mines getting deeper), and supportive commodity prices. On the supply side, long lead times for permitting and constructing new facilities—combined with increasingly stringent regulations around Class 5.1 dangerous goods—favour existing installed production capacity in Western Australia’s tightening explosives market.

Orica’s (ASX: ORI) 1H25 result highlighted its Blasting Solutions division in Australia Pacific and Asia as the standout performer, delivering EBIT growth of 46%. This drove a 34% increase in group profit and helped lift the ORI share price by 19% over the past month.

Aquirian is a pure-play exposure to the growing shift toward emulsion explosives, which are water resistant and better suited to deeper, wetter mining conditions, when compared to traditional ANFO explosives. Emulsion explosives account for ~45% of bulk explosives in WA and are gaining share.

Strategically located on WA’s northern freight corridor, Aquirian’s Wubin facility accesses up to 1.25 million tonnes of demand. With limited local emulsion capacity—and with Wubin already tolling for a global major player—AQN is well positioned to secure new contracts.

We see two key tailwinds as driving growth opportunities for AQN:

1. Western Australian gold

With gold prices smashing through US$3,000/oz (over A$5,000/oz), miners are generating record cash flows, ramping up exploration, and fast-tracking marginal projects into production. Anecdotally, we’re seeing every gold junior that’s been hiding under a rock for the past five years now resurfacing and outlining a path to production.

This surge in activity is fuelling strong demand for mining services—especially in blasting and explosives. In January 2025, Aquirian secured a landmark 3-year, $20 million supply deal with Aurenne Mt Ida Gold, a ~100kozpa private producer. With strategic proximity to key Goldfields and Mid-West operations and the ability to deliver integrated solutions beyond just explosives, AQN is well-positioned to capitalise on a wave of similar tenders expected over the next 6–12 months.

2. Pilbara iron ore

The Pilbara is underwater! Not from this year’s cyclones, but in a more permanent sense—as iron ore giants BHP (ASX: BHP), Rio Tinto (ASX: RIO), and Fortescue (ASX: FMG) steadily shift operations below the water table. Some mines now extract up to 80% of their ore from saturated zones, with sites like FMG’s Cloudbreak and BHP’s Mount Whaleback mining almost exclusively below groundwater level. This transition is driving increased demand for water-resistant emulsion explosives. BHP estimates that 40% of its WA iron ore will be mined from below the water table by FY2040—a fourfold increase from FY2022.

AQN's Wubin facility is underutilised and has significant operating leverage to an increase in production throughput. The last contract announcement triggered a 40% share price spike, and at full capacity (160ktpa), Wubin could support up to $160 million in revenue and over $25 million in EBITDA. Aquirian is entering a key contracting period in the next 6 months, with several prominent gold mines that we track coming up for tender, as well as larger iron ore major contracts up for grabs towards the end of the year. We think the company can achieve ~40ktpa throughput by FY27, generating ~$50 million annual revenue.

We believe investors are underpinned by the value of the Wubin facility and the existing operating businesses (Collar Keeper and People Services), with the market ascribing little to no value to increased utilisation at Wubin—a scenario we view as likely. While AQN may not be fully covered by asset value alone, the asymmetric upside it offers is, in our view, significantly mispriced.

A key part of identifying these opportunities is recognising embedded optionality—instances where investors can pay a fair price for one asset while gaining exposure to another compelling opportunity at little or no implied cost. In AQN's case, you're not necessarily getting something "for free," but the underappreciated optionality around Wubin’s future utilisation is effectively being priced that way.

We’ve been watching AQN for some time but were previously held back by its modest cash balance—potentially limiting ramp-up capacity and contract wins—and low share liquidity. However, the recent $5 million capital raise in March 2025 at $0.26, which we participated in, addressed both concerns.

AQN is held in the Seneca Australian Small Companies Fund, and we think the stock can double from current prices.

2. Valuation is underwritten by asset #1, free option on asset #2

Case study: Global Data Centre Group (ASX: GDC)

Global Data Centre Group was a top 5 holding of the Seneca Australian Small Companies Fund at inception in October 2023. The company held stakes in data centre assets and traded at a discount to book value, even though we believed that book value significantly understated the true worth of those assets. In round figures, we acquired shares at ~$2.00, believing fair value was at least $3.00, with upside potential to $3.50–$4.00—a free option on growth.

Our thesis was underpinned by GDC’s assets: Etix, a European edge data centre operator, a stable low-growth Perth facility, and a meaningful cash balance. But the kicker was its 1% stake in AirTrunk, a private hyperscale data centre business leasing massive warehouses to cloud giants like Google, Microsoft, and Amazon. We believed we were getting this high-growth exposure for free.

Valuing AirTrunk was challenging due to limited public data—but that opacity created the opportunity. By triangulating financial disclosures and comparable M&A multiples, we could be precisely wrong, but directionally right—and still make money. When AirTrunk went up for sale and whispered valuations turned into confirmed figures, the market re-rated GDC toward its ~$3.40 fair value. A stock that traded at $1.50–$2.00 in obscurity was simply hiding value in plain sight—for those willing to dig.

How to apply and make money today

It’s not about finding “the next GDC” or chasing the next data centre winner—it’s about using pattern recognition to spot similar setups with distinct features. The situations won’t be identical, but the underlying dynamics often rhyme.

Neuren Pharmaceuticals (ASX: NEU)

Neuren Pharmaceuticals is a biotech developing drugs for rare neurological disorders. Its lead treatment, Daybue, is approved for Rett syndrome, while its second candidate, NNZ-2591, is advancing toward Phase 3 trials for multiple rare neurodevelopmental disorders including Phelan-McDermid, Angelman, Pitt Hopkins, and Prader-Willi syndromes.

Neuren burst onto the scene in 2023 as an overnight success, 10 years in the making—shares surged 7x to a peak of $24 following FDA approval of Daybue, making it the top-performing stock in the ASX 200 that year. But after the initial euphoria, the stock halved in 2024, becoming one of the index’s worst performers.

NEU is currently in an unloved, catalyst-scarce purgatory between the commercialisation of its first drug, and undertaking trials for its second drug. Those who’ve read my ramblings before will know I’ve written a fair bit about mining (see here & here). In mining terms, Neuren is currently in the “orphan stage” of the Lassonde curve—a typical share price valley that follows exploration success. It’s the phase where speculators step back, waiting for more certainty as the project moves through the less glamorous development and feasibility stages, before returning as commercial production begins and cash flow hits the bank. We see clear parallels with investor interest waxing and waning along Neuren’s journey in the biotech sector.

We have our own slightly more detailed financial valuation model, but in simple terms, here's the maths:

Neuren has a cash balance of $341 million, or $2.66 per share, generated from Daybue profits, milestone payments on monetising its priority review voucher.

• Asset #1: We think Daybue in North America is worth $10.00, with another $4.00 of value from its application in Europe, Japan and the rest of the world. Daybue is a rare neurological drug, enabling high prices and strong margins for Neuren via its US partner, Acadia. Neuren operates leanly, with just 20 staff supporting a $1.3 billion market cap, and relies on Acadia for distribution—positioning it as a high-margin royalty collector. This capital-light model provides significant operating leverage, and we expect a similar approach for NNZ-291 if successful.
• Asset #2: NNZ-2591 could be worth multiples of Daybue if approved. A Phase 3 trial is set to commence in mid-2025, with results expected within ~24 months. As is typical in drug development, outcomes are binary and difficult to predict. A comprehensive study of over 21,000 compounds (2000–2015) found that approximately 59% of drugs entering Phase 3 trials ultimately secured FDA approval (NCBI). Neuren’s odds may be slightly better than average, given NNZ-2591’s shared and simplified mechanism of action with Daybue, a cleaner side effect profile, and favourable regulatory designations. Nonetheless, we conservatively risk-weight its value at 50%, equating to $13.50 per share. On an unrisked or ‘blue sky’ basis, full approval could imply a valuation of $27.00 per share, with additional upside from potential applications in other indications.

On Daybue and cash alone, we believe NEU has 26% upside, with nothing assumed for NNZ-2591. On a risked basis, we forecast +129% upside.

Why should NEU re-rate >100% in the next two years?

Because if it doesn’t, the risk-reward setup heading into NNZ-2591’s Phase 3 readout becomes too asymmetric to ignore: a classic ‘heads I win, tails I don’t lose much’ scenario. With a ~60% probability of success, the upside case points to ~$30/share (more than double the current price), while downside risk appears limited to ~$15/share—around today's valuation.

From first principles, the logic is simple: If NNZ-2591 succeeds, the program becomes de-risked and could justify a 4x valuation uplift. If it fails, the fallback value is largely preserved in Daybue’s royalty stream, with little incremental downside.

Like with GDC, these inefficiencies don’t last forever. Markets eventually catch on.

Opthea scars fresh, but Neuren is different

Many investors remain wary of biotech after costly failures like Opthea (ASX: OPT), where Phase 3 disappointment erased years of anticipation and wrong-footed even some of the best investors. It’s a painful reminder: early-stage drug development has just a ~10% success rate, like picking a needle from a haystack. Even at Phase 3, the risk remains real. But it's worth noting that the much-maligned Opthea actually ran from $0.25 in July 2024 to $1.10 by February 2025, purely on anticipation ahead of its trial readout, before disappointing results reset the stock. Investors made 4x without taking clinical risk.

Neuren is not another Opthea. It’s already backed by a commercialised, cash-generating asset (Daybue), a strong balance sheet, and a capital-light model. That puts a downside floor under the valuation—a crucial difference. This setup is far more reminiscent of market darling Telix Pharmaceuticals (ASX: TLX) than Opthea.

Like Neuren, Telix built on a profitable foundation with Illuccix, a diagnostic imaging agent approved for prostate cancer detection, and leveraged it into a broader oncology pipeline, self-funding its growth. The journey hasn’t been smooth for TLX—volatility saw the stock fall 53% in 2022 and 26% in 2023—but investors have consistently underpriced the optionality in its pipeline. The net result: TLX shares are up over 3x since its first Illuccix sale in December 2021 and 14x since completing its Phase 3 trial in 2020.

In the meantime, Neuren is putting its strong cash balance to work, aggressively buying back shares on market. We note some director buying in April amidst broader market volatility.

On a medium-term view, we think NEU presents as one of the most attractive asymmetric opportunities across the market.

Hopefully, that gives readers a sense of how we approach small caps—and how that’s translated into a 28.3% net return over the past year, 24.6% ahead of the benchmark.

We’ve covered two of the strategies we use to uncover alpha. There were a few more in the drafts, but we figured—why give away all the alpha for free? Maybe next time. If you’re keen for a part 2, let us know in the comments.

Learn more about the Seneca Australian Small Companies Fund (Wholesale investors) here.

Alternatively, we write up 2 of these kinds each and every month for self-directed investors over at Good Research.