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.
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.
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.
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.
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.
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.
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.
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.
I make my investment decisions based on the fundamentals, so I am no expert in charts.
"...to write more frequently about what I love most - actionable stock ideas."
Who doesn't like that! So I voted, "yes", on continue this format.
My caveat, tho, is that your brief overview seems strictly related to fundamentals, and I prefer short term Trading, whether intra-day, 2-3 days, based on TA.
No matter the timeframe, Charting is key [which is what I love most].
Forgive my ignorance, but do you mostly trade long or do you also short? Do you make your trading decisions solely on fundamentals, or do you chart the issue as well?
Thanks.