MoneyTalks: 5 ASX stock picks in a sector that’s on sale right now – and doesn’t rely on shipping

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Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from senior analysts Gaston Amoros and Alex Shevelev at Forager Funds Management.

What’s hot right now?

The workplace is changing.

Big businesses are pushing towards automation and the digitisation of workflows.

“Who provides the tools to help them do this? Enterprise software companies,” Amoros and Shevelev said.

“Enterprise software businesses have some amazing qualities when compared to your run-of-the-mill business.

“They have clients who rarely stop paying them, and often demand more of their software and services over time – add new clients to the mix and you have a recipe for strong growth. They have a lot of pricing power because customers often have few alternatives.”

The duo explained that unlike a lot of businesses suffering from physical supply chain limitations (think about the difficulty of a dealer getting new car supply due to the global chip shortage), enterprise software companies sell invisible ones and zeros.

“And while the people writing those ones and zeros are an expensive resource, companies have quite a lot of control over how much they spend to develop and sell their software,” they added.

“Many of the fastest growing enterprise services companies are not generating cash flows yet, but they are making big steps towards being profitable by reducing spending plans while high quality revenue piles up.”

And the good news now?

The rout in all things technology has meant enterprise software companies are on sale, they say.

Top ASX picks

NTO provides big businesses with PDF document productivity and eSigning solutions.

Amoros and Shevelev say the company has been growing quickly, with recurring revenue up 40% from last year.

“The business is well funded, with cash of US$42m and moving towards cash flow breakeven in the next 18 months – it also funded the Connective purchase with equity issued at $3.43 per share,” the pair said.

“Today you can buy a share of Nitro for $1.20.”

Like Nitro, RPMGlobal services some large clients and provides an important solution.

RPM’s suite of mining software products allow miners to understand when a piece of mining equipment will break down, whether a mine will meet its financial metrics and when certain parts of a mine should be extracted.

“Despite the company adding more than $9m of sticky recurring revenue so far this financial year, and increasing profits by 255% (from a low level last year), RPM’s share price is down 26% this calendar year,” Amoros and Shevelev added.

WSP is a leader in the automation of communication workflows and grew its recurring revenue by 24% when it last reported results for March.

“A recently signed marquee deal with Singapore Telecommunications, similar to the agreement it has with Telstra in Australia that has provided the vast majority of the customers and revenue today, will grow the revenue contribution from Asia,” the analysts explained.

“After raising capital at $3.70 per share last year to fund spending on products and an expansion into the US, the company’s share price is down 63% this calendar year and is currently trading at around $0.80 per share.

“With one-third of its market cap in cash, Whispir anticipates being cash flow breakeven within two years.”

RDY – a provider of education, workforce, and government software – has been cash flow positive since it listed three years ago.

“The company grew revenue 17% organically when it last reported earnings and generated almost $7m in net profits for the half year,” the pair said.

“Just last week the company announced an acquisition of another software solution for local councils, in a deal worth up to $55m.

“It also announced that Readytech is on track to grow revenue at a mid-teens growth rate this year and all the way out to 2026.”

The share price has fallen nearly 30% this calendar year and the business trades at 15 times its 2024 financial year net profit.

BTH is a global leader in sales enablement and has strong US-based recurring revenues.

“Many enterprise software companies have made additive acquisitions recently and Bigtincan is no exception,” Amoros and Shevelev said.

The company recently acquired training platform provider Brainshark, doubling the business and allowing for the extraction of some pretty straightforward synergies.

“We expect BTH to continue to grow revenue at about 20% for a few years as the business reaps the rewards of product development investments made over the last few years.

“Its cost base will grow much slower than revenue leading to operating leverage and profits.

“With a net cash position of $45m and a market capitalisation of only $250m, Bigtincan expects to achieve cash flow breakeven in the 2023 financial year.”

 

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead.

Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

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