Criterion: Hunting for reporting-season pearls among the ignored small caps

In the profit-reporting stampede that just came to a spluttering close, it’s been easy to overlook potential small-cap treasures.

Pic via Getty Images

In the profit-reporting stampede that this week drew to a spluttering close with the usual rush of last-minute laggards, it’s easy to overlook the hundreds of small cap results that attract little coverage.

We use the ‘small caps’ descriptor cautiously, because the ASX small ordinaries index consists of the 200 biggest stocks outside of the top 100. In other words, they’re not that small – average market of $1.58 billion and as high as $9.2 billion – and tend to be well perused.

Further down the evolutionary chain, there were plenty of surprises – not all of them positive – because the stocks are largely unscrutinised and boards are less likely to be goaded into giving definitive guidance.

Some of them are even paying dividends!

One literal jewel was Atlas Pearls (ASX:ATP), the only listed company of its ilk in the world, which farms the tricked-up oysters across Indonesia.

Atlas shares surged 32 per cent after the company reported a $31.5 million net profit, up 246 per cent, on revenue of $41.7 million (up 53 per cent). The real pearler was the one cent per share special div, which implies a 7 per cent yield.

Pre results, Atlas bore a sub $50 million market cap. Our only explanation is that aquaculture has been a sea of misery for investors over the years, with expectations lower than the Mariana Trench.

In other quarters, the obscure FOS Capital (ASX:FOS)  manufactures and supplies lighting – “quality luminaries” – to industrial clients as well as schools and hospitals. It also exports to Europe and the UK.

FOS reported full-year sales of $24.5 million, up 43 per cent.

The company also grew underlying earnings by 116 per cent to $2.1 million and bestowed investors with a one cent a share dividend.

FOS shares have surged 80 per cent over the last year, but the company is still worth a mere $15 million.

Speaking of making and exporting stuff, dental products supplier SDI (ASX:SDI) has been around for more than 50 years and competes with much bigger rivals in multiple offshore markets.

With mercury-bearing amalgams being outlawed, SDI has swung to whitening products and more aesthetic composite and glass-ionomer cement materials.

SDI is tapping the shift with a patented product called Stela, which preserves the natural strength and colour of a tooth while looking as white as Atlas Pearl’s finest.

SDI’s full-year sales climbed a modest 3 per cent to a record $111.2 million, but earnings surged 48 per cent to $10.4 million. It’s toothy smiles all around for investors, who pocket a 1.9 cents per share dividend in addition to the 1.5 cent interim payout.

The $90 million market cap SciDev (ASX:SDV) isn’t quite at the dividend-paying stage, but warrants a mention because of its Fluorofix product that cleans up ‘forever chemicals’ known as Per- and poly-fluoroalkyl substances (PFAS).

Commonly used in firefighting foam, the substances have been linked with maladies including cancer, organ damage and infertility.

SciDev’s full-year revenue grew 22 per cent to $109.2 million, driven by an 88 per cent sales surge for the water technologies (PFAS) arm. Net profit came in at $2.2 million and strong contract wins coupled with endless demand bode well for another strong year.

Without going full Julie Andrews, these stocks are ‘a few of our favourite things’ – other than fluffy kittens of course – with plenty more small cap gems to be uncovered from unexpected quarters.

Another example of being surprised by joy – apologies to William Wordsworth there – are the not-as-bad-as expected numbers posted by recovering retailers Baby Bunting (ASX:BBN)and City Chic Collective (ASX:CCX).

Originally published as Criterion: Hunting for reporting-season pearls among the ignored small caps