3 ASX small cap shares to buy in 2018 from a top performing fund that’s gained almost 20 per cent in the last 12 months

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Writing in its September 2018 update, the MHOR Australian Small Cap Fund said performance for the month was driven by exposures to mining services and resources, specifically energy.

The fund exited the month with 48 investments, and 16 per cent cash. Portfolio managers James Spenceley and Gary Rollo are modestly bullish and expect the share market to continue its grind higher.

In September, the fund increased its resource related exposure to a modest overweight, swapping some mining services names for resources.

The fund’s largest underweight remains the discretionary consumer sectors as the managers continue to see headwinds from house price declines and credit tightening impacting domestic consumption.

These three ASX shares were big winners for the fund in September.

The Alliance Aviation Services Ltd (ASX:AQZ) share price gained 11 per cent in September, and is now up more than 350 per cent since the fund first started buying AQZ shares.

The fund said the next catalyst for the stock is the upcoming Alliance Aviation Services AGM where the portfolio managers anticipate a material capital management / dividend event reflecting the quality of the earnings and asset position the business is now in.

In August, Alliance reported full year profits increased 33 per cent and announced a record full year fully franked dividend of 8.8 cents, up 193 per cent on the prior year.

Alliance Aviation is provides essential fly in fly out services to mining, energy, tourism and government sectors.

With Alliance Aviation Services shares currently at $2.40, they trade on a price to earnings ratio (P/E) of around 16 times earnings and a fully franked dividend yield of 3.67 per cent.

The Ausdrill Limited (ASX:ASL) share price rose 10 per cent in September. In August, the mining services company raised $250 million at a share price of $1.47 to fund the acquisition of Barminco, one of Australia’s leading underground hard-rock mining contractors.

The MHOR Australian Small Cap Fund said Barminco’s Australian domestic underground mining assets offer a lower capital intensity, higher returns and lower earnings volatility than Ausdrill’s existing businesses.

“We think these are quality factors the market will appreciate over time, in the meantime buying ASL on sub 4x EBITDA, a material discount (35+ per cent) to peer like exposures,
made sense to us,” said the portfolio managers.

The Sundance Energy Australia Ltd (ASX:SEA) share price rose 16 per cent in September on higher oil prices and what the fund thinks are expectations rising ahead of what it sees as very important production results in SEA’s September Operational report.

Sundance acquired proven acreage in a large re-capitalisation like transaction in March 2018. The fund said the first (5) wells associated with that acreage – Live Oak – were drilled in mid-August, meaning that we should get the important initial production stats for these wells.

“This data will give us some early insights on expected future returns SEA might get as it deploys the latest drilling and completion technology across the acquired acreage,” said the portfolio managers. 

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

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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