Glennon Small Companies Limited

Strong conviction towards small-cap stocks: Glennon Small Companies Limited (ASX: GC1) stated in its recent release that it has a net trading asset (NTA) before tax of $1.04 per share as on 31 October 2018. The portfolio consisted of 37 stocks along with a cash weight of 11% as on the above date.

For FY 2018, the revenue from ordinary activities was up by 667% on a Y-o-Y basis to stand at $13.617 Mn. This was on account of the strong performance witnessed in the small-cap market.Apart from it, robust gains were received from the small resources market which provided with a return of 49% for the financial year under review.
 
Going further, it is believed that the company is very well poised to offer a substantial amount of upside from these levels. However, due to the weakening of A$ against the US$, the Australian companies are anticipated to face the heat. Still, the company would keep on investing in the Australian small companies as the investment committee has a lot of conviction for this sector in the coming future.
 
 
 

 
GC1’s Net trading Assets and Cumulative Dividends Trend (Source: Company Reports)
 
On the analysis front, for FY18, the company has an ROE of 18.8%, which is commendable and has clocked a healthy pre-tax margin of 89%. The stock price has fallen by a modest 4.12% over the past six months as on December 03, 2018. Hence considering that the worst is over for the financial markets as of now and investment committee’s strong conviction towards the small-cap portfolio stocks, we maintain our “Hold” recommendation on the stock at the current market price of $0.960 (up 3.226% on December 04, 2018).
 

NAOS Emerging Opportunities Company Limited

Strong Dividend yield: NAOS Emerging Opportunities Company Ltd (ASX: NCC), had a pre-tax net trading assets (NTA) of $1.19 per share as at 30 October 2018. The company had nine long positions which formed part of its portfolio. The company’s weighted average market capitalization of the investments stood at $89 Million. The company’s portfolio for the month fell by 6.09% but still outperformed the benchmark Small ordinary Accumulation Index (XSOAI) which was down by 9.60%. This has resulted in performance since the inception of +117.37% vis-a-vis the benchmark which has returned 31.24% during the same period.
 
Moreover, the company’s profit for the year ended June 30, 2018, was $4.1 Mn, while the company has paid a fully franked dividend of 7.25c which is an increase of 4% on a Y-O-Y basis. The historical fully franked dividend yield stands at 6.28%. If we analyze the investment portfolio performance for three years, NCC portfolio has provided a return of 13.45% p.a. as compared to the “ASX small ordinaries accumulation index” which has given a return of 10.53% p.a., exhibiting an outperformance relative to the benchmark index of 2.92% p.a.
 

 
NCC’s Investment Performance (Source: Company Reports)
 
On the financial metrics front, the stock has an annual dividend yield of 6.28% p.a. which is better than the collective Investment industry median. Meanwhile, the stock price has fallen by 4.94% over the past one month as on December 03, 2018 and is trading lower range. Hence considering the stellar investment outperformance over the years and a robust dividend yield, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $1.165.
 

WAM Microcap Ltd

Strong Investment portfolio performance: WAM Microcap Ltd (ASX: WMI), had a subdued month of October as the investment portfolio fell by 7.5%, on account of shaky global economic environment and rate hike fears from US federal reserve. The company’s net trading assets before tax came in at 125.84 cents per share. The portfolio outperformed the S&P ASX small ordinaries Accumulation Index by 7.4% for the Year till date as on 31 October 2018.
 
Moreover, the company delivered a TSR (total shareholder’s return) of 31.4% as for the FY 2018. These shareholder’s returns were largely achieved on the back of strong investment portfolio performance of 31.2%, and the premium maintained over and above the value of NTA. Also, the company recorded its first ever operating profits before tax of $42.4 Mn. This strong profit performance was indicative of the exemplary investment portfolio performance that it achieved during the fiscal.
 

 
WMI’s Portfolio Composition (Source: Company Reports)
 
In the meantime., the stock price has fallen by 9.70% over the past three months as on December 03, 2018. Hence considering its outperformance and robust TSR for the year, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $1.340.
 

NAOS Small Cap Opportunities Company Limited

New Investment manager & strategy in place: NAOS Small Cap Opportunities Company Limited (ASX: NSC), has stated via a release that post the requisite approval from the shareholders and subsequent consent from the ASIC (Australian Securities and Investment Commission), Delloite Touche Tohmatsu has been appointed as its new Auditor. It is here notable that Pitcher Partners were the immediate past auditors of the company.

Further, the company’s pre-tax NTA came in at $0.83 per share as at 31 October 2018. The company had 10 stocks in its portfolio. For the month, the investment value fell by 7.61% but still was able to outperform the benchmark, i.e. Small ordinaries accumulation Index. During the month, the company declared a fully franked dividend of 1.35 per share which was paid on the 19 November 2018. During the FY 2018, the shareholders have appointed a new Investment manager and the company’s investment strategy has also been changed in view of the above. This is done with an objective of maximization of long-term risk-adjusted returns.
 

 
WMI’s Portfolio Composition (Source: Company Reports)
 
Meanwhile, the stock price has fallen by 9.64% over the past three months as on December 03, 2018. Hence considering that the company has got a new Investment manager and there is new strategy in place which is yet to prove its performance going forth, we advise a wait and watch view on the stock at the current market price of $0.750.
 

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