Small caps are doing well

SH

INDEPENDENCE GROUP

SOURCE: BLOOMBERG

One-third of small cap companies listed on the ASX will earn over 10%pa over the next three years, according to the forecasts of boutique small-cap manager NovaPort. What is more, they are trading at a 17% to 20% discount to ASX leaders.

Many of the small caps with high earnings are in the financial and resource sectors, but NovaPort’s portfolio manager, Sinclair Currie, says while mining and energy companies are strongly represented in the high-growth small-cap category, they also account for an equally high proportion of the low-growth and speculative categories. The biggest risk factors for these small-cap underperformers are depressed commodity prices and uncertainty around project viability and financing.

However, Currie is optimistic about the sector’s opportunities and has identified Horizon Oil (ASX code: HZN) and Independence Group (IGO) among mining and energy small caps in the top 18% of the sector.

“We view Independence Group as an attractive stock and over the next three years. We expect the Tropicana mine, of which they own 30%, to ramp up production and deliver a major lift in earnings if their costs and gold output forecasts can be achieved,” says Currie.

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