ASX Small-caps Trio Riding High- Secos Group, Recce Pharmaceuticals & Powerwrap Limited

Summary

  • As markets continue to recover, small-cap stocks could impressively outsize relative larger cap stocks and supercharge an investment portfolio.
  • SECOS Group was one of the first companies in Australia to have its compostable biopolymer resin & film products certified as compostable in 2012 and has recently been selected by Woolworths to supply two certified compostable bin liners.
  • Two of Recce Pharmaceuticals promising compounds have been chosen by the CSIRO to investigate their efficacy against SARS-CoV-2.
  • Powerwrap’s recent proposal of a Praemium merger is deemed to be an exciting opportunity for shareholders to leverage Praemium’s strong financial position and advanced technology while adding increased scale and significant synergies.

It is an appealing thought that with one big deal or inking one crucial agreement, small cap stocks can surprise share markets and see the value of their company skyrocket in a mere matter of hours!

Market experts believe that though small cap stocks offer greater risk and volatility relative to blue-chip shares, some exposure to them and leveraging their potential upside like growth opportunities can enhance one’s investment portfolio. Moreover, in a historically low-interest rate regime, small cap stocks could be a lucrative prospect owing to their higher market sensitivity.

On 9 July 2020, 3 ASX-listed small cap companies staged a notable performance owing to significant updates, with their stocks trading over 50% relative to respective last closes (price after market close on 9 July 2020)-

SECOS Group to Supply Woolworths with Compostable Products

Australia-based SECOS Limited (ASX:SES) has significant IP around formulation and production of compostable resin, film and bags. The Company’s mission is to replace single use plastics with compostable alternatives. SECOS’ Certified Compostable products and bags aim to enable diversion of household food waste into treatment stations (organic).

Broadening its product portfolio and customer base, the Company has been cherry-picked by Woolworths to supply Compostable Products that would comprise of two certified compostable bin liners for stocking in 86 Woolworths ECO Stores- 8L Kitchen Caddy Bag and 36L Bin Liner. The Company would be launching Woolworths Certified Compostable Bin Liners under MyEcoBag brand in Australia. It would expand to include MyEcoPet portal (compostable Pet Waste Bags) as well as MyEcoWorld (other bag offerings).

Initial rollout is likely to begin in July and consumers will be able to access these compostable caddy bags directly from Woolworths ECO Supermarket Stores. This new commercialisation activity expands SECOS’ retail presence, as it has been supplying Councils and film converters for years.

Recce’s Antiviral SARS-CoV-2 Screening Program Agreement

Pioneering development and commercialisation of new classes of synthetic anti-infectives, Recce Pharmaceuticals Limited (ASX:RCE) contributes to urgent global health issues of emerging viral pathogens and antibiotic resistant superbugs.

Following selection of RECCE® 327 and RECCE® 529 in the Priority 1 candidate group owing to their unique mechanism of actions against hyper-mutation, the Company has entered into an Antiviral SARS-CoV-2 Screening Program Agreement with-

  • The Commonwealth Scientific and Industrial Research Organisation (CSIRO) and
  • The University of Melbourne at The Peter Doherty Institute for Infection and Immunology.

The Program is part of the Australian Government’s efforts to recognise capable anti-viral candidates and accelerate research into potential treatments for COVID-19. All IP will be retained by the Company, and it will take a few months/ updates to be presented on material progresses.

Expenditure is reportedly staged, and Recce anticipates the first stage to be an amount worth ~ $35k. Moreover, therapeutic antiviral treatment emphasis of RECCE® 327 and RECCE® 529 may well see additional potential benefit in contradiction of secondary bacterial infections.

Powerwrap & Praemium Bid Implementation Agreement

One of Australia’s leading wealth management platforms, Powerwrap Limited (ASX:PWL) has a unique platform service that offers a comprehensive suite of investment, administration, and shared services to high net worth investors.

The Company has entered into a bid implementation agreement with Praemium Limited (ASX:PPS) wherein Praemium will make an off-market conditional takeover bid for all issued fully paid ordinary shares of Powerwrap that it does not currently hold. The Offer values Powerwrap at an indicative price of 26.44 cps/ $55.6 million for entire Powerwrap’s issued share capital.

The Board has cited very compelling reasons for Company shareholders to accept the offer. A few are highlighted below-

  • Indicative Price represents an attractive premium of 51.1% to the last closing price of PWL Shares prior to the date of this announcement (9 July 2020), 82.3% to the 3-month VWAP of PWL Shares of $0.145 and 138.4% to the 6-month VWAP of PWL Shares of $0.111
  • Shareholders will have the opportunity to participate in the benefits of a merged group, perhaps Australia’s largest independent specialist platform providers on a combined FUA basis. The offer may create a leading financial platform business with combined FUA of over $27 billion.
  • Shareholders will be able to participate in expected upside from realisation of potentially significant synergies, with full year EBITDA operating cost synergies expected to total $6 million by FY2022, on a preliminary basis
  • Potential access to CGT scrip-for-scrip rollover relief
  • Reduction of operational, financial and competition risks

While the discussed three small cap stocks have fetched market attention evident in their stock performances for the day, it would be interesting to watch how other small caps propel their growth and traction in the coming days.

GOOD READ: Your One Stop Guide to Investing in Small Cap Stocks

(Note: All currency in AUD unless otherwise specified)


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