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3 small cap ASX shares to buy for 2021


There are some small cap ASX shares that may be able to generate good returns in 2021.

#Identifying a business that’s earlier on in its growth journey may mean it’s possible to capture more capital growth.

#Here are three smaller businesses with growth potential:

#City #Chic #Collective #Ltd (ASX: CCX)

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#City #Chic is a retail ASX share that sells plus-size clothing, footwear and accessories to women.

#It adapted to COVID-19 conditions by ramping up its online sales, which grew 113.5% in FY20 and represented 65% of total sales. #Fund manager #Chris #Prunty from QVG #Capital thinks that the e-commerce theme will continue to grow after COVID-19 has passed. #For a business like #City #Chic, the small cap ASX share’s ability to sell products online underlines its ability to build a market-leading position for itself.

#Not only is the company organically growing its presence and sales internationally, but it also recently announced a UK acquisition called #Evans, which also sells plus-size clothing. #Evans’ e-commerce and wholesale businesses generated £26 million (A$46 million) of sales for the financial year to #August 2020. #City #Chic wants to turn #Evans into an online only operator and try to capture a portion of the $9 billion UK market. The small cap ASX share said that #Evans has high online penetration with almost half of direct-to-consumer sales (stores and website) being through the digital channel.

#According to #Commsec numbers, the #City #Chic share price is valued at 25x FY23’s estimated earnings.

#Temple & #Webster #Group #Ltd (ASX: TPW)

#Temple & #Webster is an e-commerce business that sells furniture and homewares.

#Products are directly sent to customers by suppliers which assists with fast delivery and reduces inventory needs. The small cap ASX share also has its own private label range.

#Management have previously pointed out the economies of scale benefits that come with the growth. #As it gets bigger, it becomes a more important part of suppliers’ business, which secures improved stock security, better terms and exclusive product ranges. #Being larger also means that #Temple & #Webster can invest more in technology, data, marketing and private label products.

#In FY20 it grew full year revenue by 74% to $176.3 million. The economies of scale previously mentioned helped grow earnings before interest, tax, depreciation and amortisation (EBITDA) by 483% compared to FY19 to $8.5 million, with the adjusted EBITDA margin growing from 2.5% to 5.3%.

#Growth has continued into FY21 with revenue for the period of 1 #July 2020 to 19 #October 2020 up 138% compared to the prior corresponding period. FY21 first quarter EBITDA generated was $8.6 million, which was more than the whole of FY20.

#Using #Commsec numbers, the #Temple & #Webster share price is valued at 35x FY23’s estimated earnings.

#Fund manager #Eley #Griffiths has conviction in the discount retail business, The #Reject #Shop. The fundie said: “The ASX share sits at the early stages of a planned multi-year turnaround. #New management have a reset balance sheet, strong brand and an operating model awaiting refinement. #We have identified several levers where value for shareholders should be unlocked.” WAM #Microcap #Limited (ASX: WMI) is another fund that owns #Reject #Shop shares.

#In FY20 the small cap ASX share reported that its sales grew by 3.4% with comparable store sales growth of 3.5%. #In the first half comparable sales rose 0.5% and in the second half it rose 7.1%.

#Before AASB 16, FY20 EBITDA grew by 30.1% to $23.7 million. #It generated $4.5 million of earnings before interest and tax (EBIT), up from a loss of $23.3 million in FY19, and it made $2.7 million of net profit after tax (NPAT), up from a $16.9 million loss in FY19.

#At the end of FY20 it had $92.5 million of cash on the balance sheet and no drawn debt. #It generated free cashflow of $61.6 million, up from a $1.9 million outflow in the prior corresponding period.

#In FY21 the company will be focused on EBIT growth with cost reductions through business simplification and operational efficiency. #At the annual general meeting (AGM), the leadership said it will consider whether to pay a dividend in FY21.

#According to projections on #Commsec, at the current #Reject #Shop share price it’s valued at 12x FY23’s estimated earnings.

#Where to invest $1,000 right now

#When investing expert #Scott #Phillips has a stock tip, it can pay to listen. #After all, the flagship #Motley #Fool #Share #Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

#Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and #Scott thinks they are great buys right now.

*#Returns as of #June 30th


#Tristan #Harrison owns shares of WAM MICRO FPO. The #Motley #Fool #Australia’s parent company #Motley #Fool #Holdings #Inc. owns shares of #Temple & #Webster #Group #Ltd. The #Motley #Fool #Australia has recommended #Temple & #Webster #Group #Ltd. The #Motley #Fool has a disclosure policy. #This article contains general investment advice only (under AFSL 400691). #Authorised by #Bruce #Jackson.



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https://www.fool.com.au/2020/12/31/3-small-cap-asx-shares-to-buy-for-2021/

#small #cap #ASX #shares #buy

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