5 Microcaps in 5 Minutes (#1)

Quick overview of 5 interesting Microcaps I came across.

Disclaimer: This is not investment advice and meant for entertainment purposes only, I do not hold a position in the discussed companies but may initiate a position in the future. The mentioned names are highly illiquid, please use a Limit-order when buying.

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I’d love to write more frequently on my substack, however doing a deep-dive requires a lot of time and there are not that many interesting situations in my circle of competence. So let’s try a new format, which allows me to write more frequently about what I love most - actionable stock ideas. Real businesses, instead of macro topics.
In this new format“5 Microcaps in 5 Minutes,” I will share five interesting Microcaps that I came across and provide a brief overview. This won’t be an analysis of these companies, but a brief overview.

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1. Reko Internationals - $REKO.V

Market Cap: CA$26,81m
Book Value: CA$45,9m
EBIT ‘22: CA$2,33m

What they do: A diversified manufacturing organization.

What sparked my interest: They trade below book value and talked about a pivot in their strategy, quoting from their report:

“THE PIVOT. Reko will now offer 3 and 5 axis machining services (including but not limited to those required for mold cores, cavities and other components) but will no longer design and provide complete mold production and support.”
- Annual Report 2022

Furthermore, they are buying back their stock and are paying a dividend.

My take on it: The new pivot should increase theirs margins, in Q1 there was no margin expansion to see, and I am no industry expert to judge their business. Apart from that it’s probably not the best business, so unless it gets very cheap or there is a clear catalyst, I will stay on the side lines.

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2. Jemtec - $JTC.V

Market Cap: CA$3,55m
EV: CA$1,04m
EBIT LTM: CA$0,5m

What they do: Offer services and technologies for offender monitoring in Canadian federal and provincial correctional departments.

What sparked my interest: After loosing some clients, the stock went downhill, the balance sheet is very clean, and they have almost 2/3 of their market cap in cash. If they can win more contracts to offset the ones they have lost, the stock is definitely cheap.

My take on it: I came to the conclusion that this is not a temporal problem, but a structural, even if they are able to win new clients, their current business model is structured in a way, that these things will probably happen in the future again. I might be wrong in my conclusion, and be happy to hear your thoughts in the comments.

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3. Zapf Creation - $ZPF.HM

Market Cap: €205m
EV: €141m
EBIT ‘21: €12,75m

What they do: Doll manufacturer from Germany and probably the shareholder friendliest management after Centrotec (irony).

What sparked my interest: A delisted stock with a great business, that might do a squeeze-out. Communication is non existed and shareholders are pretty much hated. That’s why, it reminded me of Centrotec. Taking out cash on their balance, they are cheap on an EV/EBIT basis.

My take on it: Interesting situation. My current concern is, how to make money in this stock, apart from a speculation for a squeeze-out, I see no real catalyst. The money on the balance sheet (€65m) will probably just lay there.

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4. Autoscope Technologies Corporation - AATC 0.00%↑

Market Cap: $22,4m
EV: $20m
EBIT LTM: $1,21m

What they do: They produce and sell video and radar processing products to control intersection, bridge and tunnel traffic.

What sparked my interest: They suspended to file with the SEC, which caused a drop in the stock price - but saves cost for the business.

My take on it: I think it’s a pretty good business, reading from their 10-k they seem to compete more on quality than on price. They said, they want to pay out $2,8m (12,7% yield) in dividends, which in my opinion is, at best, barely covered by their Free Cashflow. All this while sales have been declining, so I am not sure, that I like their capital allocation strategy.

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5. Deufol SE - $DE1.HM

Market Cap: €47m
EV: €127m
EBIT LTM: €12m

What they do: The company offers industrial and export goods packaging services; logistics and warehousing services.

What sparked my interest: They are pivoting their strategy and recently bought a sea hub in port in Hamburg, which should give them a decent competitive advantage. Also in a P/E basis it looks cheap, however, there is quite some debt.

My take on it: If they are able to repeat their great results from the first part of 2022, they stock is cheap, however this one feels a stretch in terms of my circle of competence.

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That’s a wrap. Please keep in mind, that this format only provides a brief overview of companies, some conclusions or information may be wrong. Please use this a starting point to do your own research. How did you like this new format, let me know in the comments, whether I should keep it or not.

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