2 insanely cheap ASX stocks from a top performing microcap fund

5080

Writing in its August 2018 monthly update, the Spheria Australian Microcap Fund highlighted two small-cap ASX stocks that look to be trading at insanely cheap valuations. One of them even trades on a 9.3 per cent fully franked dividend yield.

The fund has previously discussed Vita Group (ASX:VTG), the company best know as the operator of Telstra branded stores.

The risk with Vita shares is that it has just one supplier, being Telstra Corporation (ASX:TLS). Lose that one contract, and Vita shares go up in smoke.

But such deals cut both ways, with Vita Group also being strategically important to Telstra given the smaller company influences around $1.5 billion of Telstra’s revenue.

The fund says the productivity of the stores Vita runs for Telstra is excellent and it is less prone to competition given its store footprint is skewed to regional markets where Telstra’s network is superior.

The one supplier issue is more than compensated by the depressed Vita share price. The group is highly cash generative and has $18 million of net cash on its balance sheet.

The Vita contract with Telstra has been renewed, its earnings rebased and it’s now trading on only 4 times pre-tax free cash flow, meaning a 4-year payback period.

With the Vita share price at 98 cents, the icing on the cake is the 9.3 per cent fully franked dividend yield.

The fund is a significant shareholder in Prime Media Group Limited (ASX:PRT), which it says is more out of fashion than a straw hat in winter.

The fund says it is seeing signs of stabilisation in the regional TV markets that tend to lag the metro markets, which have returned to growth.

Spheria forecasts Prime Media to generate EBITDA in the $35 to $40 million range in FY19, only slightly down on the $45 million in FY18. The fund calculates Prime is trading on 2.4 times pre-tax free cash flow, which means shareholders will get their money back in 2.4 years – all other things being equal.

In addition to its stand-alone valuation, there are enormous synergies should Seven West Media (ASX:SWM) buy Prime Media, a merger being undeniably a huge win-win for both sets of shareholders.

The Prime Media share price is languishing at 23.5 cents, down 50 per cent over the past 12 months. 

Here’s how you can strike it rich in the share market

The best way to strike it rich in the share market is to buy shares that are not only cheap, but growing quickly.

Combining countless hours of research with over 30 years of hands-on stock market investing experience, The Capital Club’s founder Bruce Jackson has just published his definitive list of 3 Cheap and Good ASX Stocks for 2018.

Best of all, the report is absolutely free, exclusively for readers of The Capital Club.

In this comprehensive free report, you’ll find the name of one ASX gold stock that’s not only profitable, but trading at less than 4 times forecast profits.

You’ll also discover the name of a company one fund manager has called the cheapest stock in the ASX 100, and you’ll read about the three catalysts that could push the share price higher in the next six months.

Finally, the report names one of the cheapest retailers trading on the ASX, a company that just picked up the assets of a distressed competitor on the cheap, paying just 2 times earnings. No wonder one top fund manager thinks its share price could at least double.

With the share prices of each of these 3 companies having the potential to double or more, you’ll want to act now. Simply click here or the button below, enter your email address, and this free report will be instantly sent to you.

See the 3 stocks

Read Next

Here are 6 of the best dividend stocks on the ASX for 2018 and beyond

Here are 10 ASX 200 shares to beat the traditional blue chips over the next 3 years

5 ASX blue chip shares for 2018 and beyond

Top fund manager names this iconic company as “the cheapest stock in the ASX 100”

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au