Adairs, Breville, Corporate Travel among UBS’s small cap stock picks ahead of reporting season

UBS’s emerging companies team has named its top small cap stock picks for the February reporting season.

UBS has named its top small cap stock picks for the upcoming earnings season. Picture: AAP

UBS’s emerging companies team has named its top small cap stock picks for the February reporting season, with Adairs, Breville, BWX, Corporate Travel and Nitro Software all making the cut.

Others on the list include EML Payments, GUD, Kelsian, NRW and SiteMinder, while the analysts, led by Tim Plumbe, are also optimistic on IDP Education, Nextdc, Imdex and Bapcor.

The team is cautious on Perenti Global and Clover, according to a note sent to clients.

Companies at risk of negative surprises through earnings season include AMA, EML Payments, Flight Centre, G8 Education, Dubber and Temple and Webster, but IDP Education, Index and Kelsian could all provide positive surprises, the analysts said.

Home furnishings retailer Adairs recently forecast first-half pre-tax earnings of $32m-$33m, which at the midpoint was 4 per cent below UBS’s estimates and 10 per cent below its expectations, after excluding a higher-than-forecast contribution from Focus on Furniture.

UBS currently has a buy call and a lofty price target of $5.70 on the stock, which closed Friday’s session at $2.99.

“The key delta to UBS’s estimates was a greater-than-expected moderation in Adairs Online sales over November and December 2021 post the reopening of NSW and Victoria, with sales up 2 per cent year on year in the first half of 2022 versus a 15 per cent (rise) after the first 16 weeks,” the analysts said. “Our feedback also points to supply-chain-driven delays affecting online orders over Christmas/Boxing Day, likely pushing the recognition of some online sales into the second half.

“In our view, the update was not materially concerning and our buy thesis is unchanged.”

The 22 per cent share price plunge Adairs suffered when it put out its updated guidance could reflect elevated expectations from the market at the time as well as uncertainty around January trading, which may have been soft given high Covid case numbers, UBS said.

Breville suffered a 20 per cent share price slide in January before bouncing 7 per cent in Friday’s trade, and the small cap analysts think the stock should be trading at a substantial premium to the market given its growth outlook, addressable market opportunity and track record.

“Our kitchen appliances industry feedback suggests strong demand across A/NZ, US and Europe, driven by continued work-from-home trends, with a positive outlook for calendar 2022,” they told clients.

Other feedback included price rises offsetting input cost inflation, alongside consumers ‘‘trading up’’, while the supply side remains challenging, the broker said.

UBS has a buy call on Breville, with a target of $35.70. The stock finished Friday’s trade at $27.52.