Top 3 ASX tech stocks to watch in June and beyond
We examine Bell Potter's recently updated key small-cap tech picks.
Bell Potter’s 3 key ASX tech stocks
In a way, the ASX has become a poster child for high growth, high multiple tech stocks. The WAAAX cohort, for example – comprised of WiseTech, Appen, Afterpay, Altium, and Xero – continues to trade on a set of steep, market defying multiples; yet nonetheless, in many instances, these companies continue to see their share prices bid higher.
Mind you, there remain many Australian tech stocks which face significantly less coverage. With that in mind, below we look at Bell Potter’s recently updated key ASX-listed, small-cap tech picks.
Uniti Group share price: the strength of recurring revenues
Since the market sell-off in May, Uniti Group (UWL) has seen its share price recover strongly, almost doubling since 18 March, to last trade at $1.55 per share.
As part of the company's most recent quarterly update, Uniti recorded a staggering 754% uptick in free cash flow, on a quarter-over-quarter basis; and noted that its ‘annualised run-rate EBITDA as at 31 March 2020 [was] tracking above forecasts.’
Overall, Bell Potter sees good value in the stock, noting that Uniti's high levels of recurring revenues stand out as a key positive and further arguing that the company will benefit from the ‘shift to working from home and the associated increase in residential demand for high speed broadband services.’
Bell Potter has a Buy rating and a price target of $2.15 per share on Uniti Group – implying significant upside from current price levels.
Infomedia share price: potential acquisitions loom
Though Infomedia (IFM) has seen its market capitalisation fall by around a quarter since January, Bell Potter's current price target on the stock imply potential upside of around
As part of a $70 million institutional placement that Infomedia completed in April, the company also reaffirmed its FY20 guidance, noting that it expected its full-year revenue to come in at between $93 to $95 million, representing an increase of between 10% to 12%, while the company expected its full-year earnings (NPAT) to come in at between $18 to $19 million, representing an increase of between 12% to 18%.
Looking forward, Bell Potter analysts noted that while Infomedia has underperformed its large-cap tech counterparts in recent times, the potential for an acquisition or two, is becoming more likely, especially now that the company has raised a total of $84 million.
Specifically, it was noted that:
‘We do, however, expect this underperformance to reverse in the coming weeks or months given the likelihood of an acquisition or two and assuming the market remains robust which will likely cause some shift in preference towards mid caps in the search for value.’
Bell Potter has a Buy rating on Infomedia.
PWR Group share price in focus
PWR Group (PWH), which heavily relies on the elite motorsports industry and the automotive aftermarket, has been significantly impacted by the coronavirus pandemic. The stock is down ~13% YTD and Bell Potter has downgraded its FY20 earnings outlook.
According to Bell analysts there is good news however, with it being noted that ‘elite motorsports and OE programs are now recommencing and the automotive aftermarket is recovering so the worst now appears to be past for the company.’
This, according to Bell, supports a strong outlook for FY21. Indeed, although the brokerage house expects PWR's earnings per share (EPS) to fall by 15% in FY20, an EPS increase of 49% is currently expected in FY21.
Bell Potter has a Buy rating and a price target of $5.00 per share on PWR Group.
How to trade ASX tech stocks
What do you think: do you see bullish or bearish opportunities from Australia’s tech sector? Trade accordingly. For example, you can trade the stocks we have discussed today – both LONG and SHORT – through IG’s world-class trading platform now.
To buy (long) or sell (short) Infomedia (IFM) with CFDs, follow these simple steps:
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
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