Leading fund manager names 3 micro-cap shares to buy now

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In its May update, the Spheria Australian Microcap Fund said it believes there is a compelling opportunity in the microcap names that have been left behind or de-rated by the stock market.

One of the fund’s biggest winners in May was Cabcharge Australia Limited (ASX:CAB), with the Cabcharge share price gaining 14 per cent higher in May.

Cabcharge shares have had a good recent run, jumping 45 per cent higher over the past three months.

The fund thinks Cabcharge shares are still attractively valued, saying that in response to the likes of Uber, Cabcharge has been able improve how their business is structured and performs.

Technology changes also mean Cabcharge has developed a competitive booking app and reduced despatch times.

The fund says it is expected the personal transport market will continue to evolve with taxis and ride sharing co-existing to service a growing market as many people do away with the second car and in some cases do not own a car.

Supply Network Limited (ASX:SNL) was another big winner for the fund in May, the SNL share price gaining 24 per cent over the month.

Like Cabcharge, Supply Network shares have had a good recent run, jumping 33 per cent higher over the past three months.

Supply Network is one of the leading aftermarket suppliers of truck parts to independent truck mechanics in Australia and New Zealand. The market is reasonably fragmented and there are genuine scale advantages in this business — think more part availability and shorter wait times for mechanics.

The fund has been a shareholder in this company for some time and continues to be impressed with the consistency of performance and the healthy conservatism of the management team.

MaxiTRANS Industries Limited (ASX:MXI) is the largest truck trailer parts suppliers and trailer manufacturer in Australia.

The fund says the truck fleet appears to be going through a refresh which ought to drive strong volumes and earnings at MaxiTRANS.

Unfortunately, whilst MaxiTRANS has continued to experience strong order volumes through its plants, its systems and workflows weren’t able to deal with the complexity of the order book.

As a result, the company materially downgraded their numbers for the second half, with the MaxiTRANS share price falling 20 per cent in May.

The fund noted that often some of the biggest investment gains have been made by adding to or entering positions during unfavourable periods for businesses. It believes MaxiTRANS will turn out to be such an investment, with the business trading at only 9 times FY19 EBIT.

The fund’s top five holdings at the end of May were are follows.

Class Ltd (ASX:CL1)
Cabcharge
Mount Gibson Iron Limited (ASX:MGX)
Pacific Smiles Group Ltd (ASX:PSQ)
Speciality Fashion Group Ltd (ASX:SFH) 

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See the 3 stocks

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