Coffee Microcaps July 2024 Newsletter

Reporting Season Incoming

Reporting Season Incoming

Hi Everyone

The S&P/ASX Emerging Companies Index TR finished up +0.25% for July 2024. ASX microcaps lagged behind small-cap and large-cap stocks for the month. The traditional tax loss selling in June seemed to have somewhat soured investor sentiment towards microcaps. With reporting season just around the corner, perhaps the market was taking a watching brief, given we have a few dead cat bounces in this current microcap bear market.

The returns for July are well below what we have seen historically in ASX microcaps, with July traditionally the best month for microcap returns over the past 20 years of data that I have. I pulled together a chart showing the average monthly return by month from January 2004 until December 2023, which gives us an even 20 monthly observations for each calendar month. As you can see from the chart below, June is, on average, the worst month, but it is quickly followed by the best month, which is July. Indeed, July - September is generally the best quarter for ASX microcap returns.

It is interesting to contrast the above chart with this one compiled by the team at Market Index, which shows the returns of the ASX All Ordinaries Index over the last twenty years. While there are some similarities, the volatility in returns is higher in microcaps, as you would expect. It is also interesting how the average returns are in opposite directions for 6 out of the 12 months.

Upcoming Coffee Microcaps Zoom Webinar Events

For anyone who doesn’t know, I regularly host presentations from ASX Microcap companies via Zoom Webinars. Two or four companies usually present Thursday mornings from 9 a.m. to 11 a.m. AEDT Sydney time.

I thank Raas Research for sponsoring all the Coffee Microcaps Virtual events.

The ASX Microcap companies that present generally have the following four criteria.

•Under AUD$300m in market capitalisation

•In revenue and approaching cashflow breakeven or already profitable

•Outside the resources and biotech sectors

•"Industrial Microcaps” Include microcap technology, financial services, consumer goods, industrial products or services business, healthcare stocks, etc.

I have created a separate email list for invites to these Zoom events so that I am not spamming all my subscribers. If you want to be added to the events list, please email me at mark@coffeemicrocaps.com, and I will add you. I would love for you to join us for these free events.

Coffee Microcaps YouTube Channel

All the Zoom events get recorded and uploaded to the Coffee Microcaps YouTube Channel. In addition to the ASX microcap company presentations, I interview leading ASX microcap fund managers on some of their top picks. Occasionally, we also have presentations or interviews with some international microcap investors.

So, if you can’t join the Zoom webinars due to work, kids, life, or whatever, subscribe to the Coffee Microcaps YouTube channel and hit the bell to receive notifications when new content is added.

Also, the description section of each video on YouTube has relevant chapters, so you can jump to the start of a specific company presentation if that’s what you are after in a particular video.

Coffee Microcaps Moring Meeting Thursday, August 1st 2024

Sam Budiselik, MD & CEO of Cash Converters International Ltd (ASX: CCV)

Sam was back again, giving us an update on all things CCV. The business continues moving more into the personal lending space while buying back franchises from franchisees and revamping the current store look and feel to drive better stock turns. The business has come a long way in the last few years and is also a consistent dividend-paying microcap stock these days.

Brendan Malone, MD & Group CEO of RAIZ Invest Ltd (ASX: RZI)

Brendan was another returning presenter. RZI has pretty much wrapped up its exit from its SE Asian business and is now totally focused on the Australian business, which Brendan believes still has a long growth runway in front of it. The standalone Australia business is approaching EBITDA breakeven and will seek to balance further growth with profitability. Some initiatives to drive profitability in FY25 include cross-selling existing products to current customers, such as Raiz Kids and Raiz Super, an enhanced rewards offering, and re-engaging dormant accounts to get them active on the platform again.

Coffee Microcaps Appendix 4c Results Wrap Friday, August 2nd 2024

All four companies presenting at this event are research clients of RaaS Research, and the latest research note can be found on the RaaS Research website.

Trent Lund, CEO of Wrkr Ltd (ASX: WRK)

Trent was back for his second presentation to the Coffee Microcaps audience. WRK provides scalable technology solutions to large and small businesses to assist in managing their compliance and monitoring requirements. He outlined how current regulatory changes, especially the upcoming “payday super” implementation, provide a solid tailwind to the WRK business and are reflected in the improving numbers. It's a business ticking along nicely.

Martin Filz, CEO of Pureprofile Ltd (ASX: PPL)

Pureprofile continues to grow and improve its financial metrics under Martin Filz and CFO Melinda Sheppard, who joined the business a few years back. It is now debt-free and has produced its first NPAT-positive result for many, many years. The data and insights business continues to build momentum, as does the US operation, despite not having a major office in the US, which is a further opportunity. PPL continues to head in the right direction.

Michael Ivanchenko, CEO of Kinatico Ltd (ASX: KYP)

Some may know it as the old CV Check business. Still, Kinatico, under the leadership of Michael Ivanchenko, is rapidly moving away from a transaction fee-based model to a SaaS-based model. While it still offers the original CV Check functionality, it offers companies much more now. The transaction from one revenue model to another always confuses people and makes the accounts look untidy. However, the SaaS model is much better, and a decent portion of its existing customer base still needs to be transitioned along with new customers it is bringing on board.

Ian Olson, CEO & Co-Founder of Pointerra Ltd (ASX: 3DP)

According to CEO Ian Olson, after a false start or two, Pointerra seems to be finally starting to click. To be fair, given the nature of the product and operating in the enterprise sales arena, which we know can have very long sales lead times and similarly long implementation timetables can follow the deal being signed. However, Ian does feel that much of the groundwork has been done, and momentum is building with customers and revenues starting to flow through to the Pointerra P&L. Investors hope more of this can be demonstrated through FY25.

Content Recommendation

As part of this newsletter, I also want to highlight some good content worth sharing with my subscribers. Hopefully, the content will be something subscribers will also enjoy and get some value from.

I have recently been trying to read more books, not just articles online. Here are three books I have read recently that might be worth adding to your reading list. I am generally a non-fiction guy, so apologies to all of you fiction readers.

The first was the personal finance book du jour Bill Perkins. “Die With Zero: Getting All You Can from Your Money and Your Life.” While I did enjoy the book, I think I heard too much about it on different podcasts or from friends who had also read it to be blown away by it. It was the situation where everyone tells you how good the movie is, and then you watch it and are like, yeah, it's good, but you yourself wouldn’t rave about it. Bill provides some counter-arguments to the financial independence retire early (F.I.R.E) tenets and certainly puts an interesting spin on how to spend money differently for better overall satisfaction.

Second up was Alcie Schroeder’s The Snowball: Warren Buffett and the Business of Life. It gives a great insight into Buffet's life and times, from growing up in Omaha to building Berkshire. The book cuts off around the financial crisis of 2007/08, and it's a pity there hasn’t been a follow-up with additional chapters added for the last 20 or so years. It is a bit of a tome at just over 700 pages, but the chapters are concise, and the storyline moves along efficiently, making it an easy read. For lovers of history, Buffett and Berkshire, this is a must.

Finally, a book I have been wanting to read for a long time. As someone and a family who donates money regularly to various charities and volunteers at some non-profit boards, Peter Singers' The Life, You Can Save: How to Do Your Part to End World Poverty: 10th Anniversary ed. was a book that has been on my reading list for a long time. Singer’s arguments around charitable giving and doing it as effectively and efficiently as possible were strong and would cause some introspection around your own giving. If you are a regular giver to charities or involved in this space, this is well worth a read for an alternative perspective on your giving.

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