Three small caps to watch after quarterlies, Spotify grows larger… and what will the US election bring?

By Jonathan Jackson. Published at Oct 30, 2020, in Features

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It is currently quarterly season and there have been some stand-out small cap stocks.

Here’s a few to keep an eye on.

Vulcan Energy Resources (ASX:VUL | FWB:6KO)

Vulcan released its quarterly report for the three months to 30 September, 2020 on Thursday, highlighting a period in which the company made significant progress on the operational and corporate fronts.

As Vulcan aims to become the world’s first Zero Carbon LithiumTM producer by producing a battery-quality lithium hydroxide chemical product with net zero carbon footprint the company has really come under the spotlight with brokers, corporate investors and retail investors alike taking a shine to the company.

This has been reflected in the company’s share price performance, particularly in the last two months of the quarter when it soared 200% from 45 cents to a 12-month high of $1.35.

The company continues to trade strongly, but recent volatility in equities markets has seen it retrace to $1.20, arguably an attractive entry point.

Hamburg-based Alster Research analyst Oliver Drebing updated his coverage during the quarter, lifting his price target from $2.45 to $2.55, implying upside of more than 100% to yesterday’s closing price.

As he highlighted, there is also political support for Vulcan, and this could potentially assist the group in fast tracking the project.

In emphasising the necessity to accelerate the move to ‘green’ practices from the sourcing of input commodities right through to environmentally conscious manufacturing standards, vice president of a European commission said, “I’m absolutely convinced that the owners of electric vehicles want a ‘full story’.

“They want to know that the product, the car, has been manufactured to the highest environmental standards, and that the raw materials have been extracted in a sustainable way.”

Vonex (ASX:VN8)

Brisbane-based award-winning telecommunications service provider Vonex Limited released its quarterly on Friday.

Vonex has a retail and wholesale focus, with both divisions making good ground during the quarter.

The main highlight is VN8’s growing recurring revenue, facilitated by the acquisition of 2SG, which has provided Vonex with forward earnings predictability.

Following the acquisition, Vonex has enjoyed 122% mobile broadband sales growth, 247% mobile voice sales growth and 53% NBN and 4G back sales growth.

It has also enjoyed Total Contract Value (TCV) of new customer sales of $5.3million in 2020 YTD, up 36% year-on-year.

Further highlights include:

  • Unaudited sales revenue of $4.44 million for the quarter increased by 84% compared to the prior corresponding period (PcP) of $2.41 million
  • Annualised Recurring Revenue (ARR) grew by 84% year on year to $16.7 million
  • Cash receipts from customers totalled $4.22 million, an increase of 68% compared to PcP of $2.51 million
  • Cash at end of quarter totalled $4.02 million

For the full story, see the Next Tech Stock report: $31M ASX Small Cap Telco Posts $16.7M Annual Recurring.

Vonex started Friday on 16 cents and finished at 18 cents, a 12.5% gain.

WhiteHawk (ASX:WHK)

WHK is one of those under the radar stocks, that has plenty of upside.

That is especially the case as the US government gets set to spend over $18BN on cybersecurity in 2021.

This is pertinent to WHK as it has completed the super difficult task of qualifying as a contractor or sub-contractor to US Federal Government agencies in the cybersecurity sector.

While the company only recorded US$320,00 revenue in the quarter, it should be noted, the invoicing amount in Q3 was US$948,000 – almost double Q2 invoicing of US$502,000.

In the month of October, US$861,000 in receivables will be collected by the company and it has $1.3M cash on hand.

Most importantly, WHK’s recent US$1.5 million (A$2.1M) contract extension with a US federal government department, had a dollar value alone more than WHK’s entire 2019 revenue.

There are also plenty of contracts in play, which you can read about in the Next tech Stock article: Immediate Upside? WHK Reveals Future Revenue Growth.

International stocks to watch

eToro’s Simon Peters gives us his run-down

Activision Blizzard (NASDAQ (ATVI)

Game developer Activision delivered its third-quarter earnings update, on the back of substantial sales growth driven by the pandemic keeping consumers at home. Momentum will be a key question for the company, with investors watching for whether growth in sales has sustained as the pandemic has worn on. One metric to look for is the company’s monthly active users figure, which is important given the revenue the firm generates from subscription services and add-on packages for its games. Currently, Wall Street analysts overwhelmingly favour a buy rating on the stock, and expectations for the firm’s Q3 earnings per share figure have risen sharply over the past three months.

Spotify (NYSE: SPOT)

Spotify has enjoyed huge growth in 2020, with its share price climbing more than 80%, as the number of premium subscribers to the company’s music streaming service has continued to grow rapidly despite the economic hit from the pandemic. Premium subscriber growth and guidance from management on future growth will be a key point of the company’s Thursday earnings report, along with the state of the advertising market. The company could also potentially use its position of strength for a pricing increase.

So what are the best and worst performing sectors this week?

The market has been bearish with most sectors in the red although Consumer Staples has managed to trade up over 1 per cent to become the best performer followed by Healthcare, which is down over 1 per cent while Communications Services, Utilities and Information Technology are all down over 2 per cent.

The worst performing sectors include Energy down over 6 per cent followed by Materials, Industrials and the Financial sector, which are all down over 4 per cent.

Looking at the ASX top 100 stocks the best performers include Coca-Cola Amatil, which is currently up over 15 per cent following a takeover bid. Coles Group is also up over 4 per cent, while Virgin Money is up over 2 per cent. The worst performers include Flight Centre down over 12 per cent, Unibail-Rodamco-Westfield down over 11 per cent, while Oil Search is down over 10 per cent.

What’s next for the Australian share market?

According to Dale Gillham of Wealth Within, “October is prone to surprises and this week was no exception, given that the All Ordinaries Index has fallen over 1.5 per cent on two separate days this week, with the market now trading at levels it was in May. This has put the market back into the sideways move we have been experiencing for nearly six months. Since the end of May, the Australian market has risen just under 5 per cent and is not looking strong, which may be due to the Presidential election being in its final stages, as the world waits for the outcome before deciding what the markets will do.

“Given the strength of the down move this week, the probability of further falls is likely, although I believe any fall will be short lived. While I am still of the opinion that our market will rise into Christmas and beyond, given the current volatility it is important to remain cautious, as anything could occur. Right now, it is wise to sit and wait for the dust to settle on the Trump-Biden election but at the same time get ready for the opportunities that will unfold in the not too distant future.”


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