10 ASX Small Cap Quarterly Updates At A Glance

During the last weeks of January, hundreds of ASX small cap companies give updates to investors. Below, I’ve summarised my notes on 10 ASX small cap stocks I follow, along with my assessment whether this quarterly (in isolation) was good, neutral or bad. Please note, expressing my view on the actual quarterly result does not mean I have a view on the stock overall!

Raiz (ASX: RZI)

Micro investment managed fund and superannuation application Raiz had a much improved quarter after a terrible year. As you can see below, receipts have been rather flat, but cash burn improved massively to around $250,000, after being much worse for the last few quarters, especially if you exclude the grant income received in FY 2022. The CEO boasted “We have delivered a significant reduction of 88% on our operating costs quarter on quarter.”

The good news was that Australian superannuation FUM was still up 4.5% YOY at $200m. This is an attractive business because Raiz’s younger user base has many years of growing incomes and increased payment to Superannuation, ahead of them. However, the bad news is that the Australian active customers are down -1.4% YOY to 287,167.

Meanwhile the company said that, “during the quarter we initiated discussions with both our JV partners [in Southeast Asia]. We are in the process of finalising discussions to reduce our equity positions.” This is easily the best part of the quarterly, as the subscale Southeast Asia expansion has been a millstone around the company’s neck, costing it money, without generating any profit. Unbelievably, after years of trying, Raiz has just $14m of Southeast Asia funds under management.

Any cash generated from selling this business could be applied to revitalising the relatively attractive Australian business, which has over $1b of FUM. Disclosure: I have a 0.1% “monitoring position” in RZI because I think it has turnaround potential (noting the poor board & management track record).

Volpara (ASX: VHT)

Volpara had a good quarterly report, showing receipts from customers of NZ$11.15 million, thanks in part to the fortunate timing of receipts. Operating cash flow of NZ$1.7 million also benefited from Government grants and R&D tax credit received totalling approx. NZ$0.9M. This led to an unsustainable but nonetheless impressive free cash flow result, as shown below. 

With NZ$12.9m in the bank and a revolving credit facility of NZ$10M in place with our main commercial bank, Volpara has access to funding. Importantly, it says “given the current materially improved net cash flow position, management believe the cash on hand is sufficient to achieve maintainable net operating cash flow break-even without the need for further capital.”

ARR of US$19.9m or $29.7m AUD puts the company on 7x ARR at the current share price of 80.5c per share.

Rightcrowd (ASX: RCW)

Rightcrowd’s quarterly report was slightly stronger than recent quarters, but still bad, because it falls short of proving the company is on sustainable footing. Given the particularly weak receipts last quarter, you could argue it is more likely a simple return to the mean, than the start of a sustainable improvement. The illiquid stock traded down 10% after the results. 

Free cash flow benefitted from the receipt of an R&D grant worth $2.77 million. You can see that the December quarter last year also saw positive free cash flow, due to the receipt of a significant grant.

Annual Recurring Revenue at the end of the period was $10.7m, up from $8.5m reported at the end of Q4 FY22, but ARR did reduce from the end of Q1 ($11.2m), “mainly due to the appreciation of the AUD ($0.4m) and some net churn ($0.1m).”

Overall I would say that the growth thesis is broken for this stock as it is not really growing much on key measures such as ARR, and yet is only targeting cost reduction of 10%. Given the seeming lack of organic growth, it’s hard to see it avoids a capital raising or takeover. I’ve long since started selling this stock, and retain a pointlessly small holding, which I will sell at some stage soon, as my thesis is broken.

Ensurance (ASX: ENA)

Ensurance is a $21 million microcap specialist insurance company with a focus on the sometimes inefficient professional indemnity insurance market in Australia. Ensurance has underwriting agreements with leading insurers, meaning it can offer high-quality products while being nimble and opportunistic. It plans to keep a percentage of the premium without carrying the underwriting risk.

As you can see below, the latest Ensurance quarterly was fairly neutral, with revenue flat and profit down slightly due to “increased costs associated with the establishment of the new Casualty Division in Australia and legal costs associated with the disposal of the UK operations.” 

As you can see above, Ensurance has been operating around breakeven, so the low cash holdings of $1.2m are precarious but manageable. On the plus side, the company is expecting $8.2m ($6m in cash, the rest in shares) from the sale of its UK retail broker division to PSC Insurance (ASX: PSI), so the balance sheet should look a fair bit stronger in the near future.

Playside Studios (ASX: PLY)

Video game developer Playside Studios reported a weak quarter, in which free cash burn deteriorated to about negative $5 million. However, receipts were up on the prior corresponding period, at around $6.8 million. As you can see below, next quarter will likely be lower than the pcp since the company made millions selling NFTs in the quarter ending March 2022. 

I took Playside off my watchlist when it started shilling NFTs, but you have to admire their timing. In any event, zooming out, the company has clearly expanded since listing, even if the growth isn’t particularly fast. With over $30m in cash, Playside can continue to burn for a while longer before it needs more funding. 

Playside has two business lines; its own IP and work for hire. This quarter, the former was down 5% on the prior corresponding period while the latter was up 233%. That’s nice for the revenues, but it would be better for profits if Playside’s proprietary IP segment were the faster growing, given its superior margins!

Wisr (ASX: WZR)

It has to be said that this was a good quarter for Wisr, with operating cash flow improving by almost 20% on the prior corresponding period, and up strongly on the previous quarter. 

Wisr is a lending business focussed on non-bank categories such as “consolidate my debt”, “buy a car”, and “take care of myself”. As such, looking at its free cash flow isn’t so much of a signal as with normal operating businesses, because its purpose is to lend out money (via investing cash flow). Given the company takes a risk on whether it receives payment, I think it’s fair to say that these kinds of businesses always feel risky. When it comes to subprime lending, I prefer to remain paranoid.

Like others, Wisr is cutting costs, and the company said: “The material cost reductions and strategic decisions made by management in Q1FY23 have had an immediate impact, with the Company delivering its first Cash EBTDA Profit in Q2FY23.” The Wisr share price is now down some 80% from its peak, and you could argue that it may have bottomed with this improved quarter. However, I would generally only ever buy a debt business if it were paying dividends so Wisr is outside my circle of competence, and I have no plans to get involved.

Aroa Biosurgery (ASX: ARX)

Aroa biosurgery sells products for soft tissue reconstruction and improved wound healing, serving patients such as those needing hernia repair, breast reconstruction and limb salvage. This quarter was fairly neutral, since receipts from customers were up strongly, but free cash flow was roughly flat on the prior corresponding period, as you can see below.

Despite a cash burn of around NZD $15m in the last twelve months, the company can still last a while without raising capital, thanks to NZD $48.3 million cash on the balance sheet. Aora has been spending money on growing its US sales team, and the pleasing thing is that growth is coming, with the company forecasting FY23 product revenue of NZ$60-62 million, up 36-41% on a constant currency basis.

Given high gross margins of 84%, I would not bet against this company since it could arguably earn strong net profit margins at scale. Having said that, with a market capitalisation of AUD $392 million, Aora Biosurgery stock is trading on 6.7 times revenues; so growth is a must.

NextEd (ASX: NXD)

NextEd is a vocational education provider that is already cash flow positive, so it stopped reporting its quarterly cash flow after the last quarter. That said, the company still gave a positive quarterly update showing record new student enrollments across August and September, as you can see from the chart in their update, below.  

On top of that, the company voluntarily reported Q2 operating cash flows of $7.7 million roughly flat on Q1, with the net cash improving by $5m to $32.5 million. If the company maintains a $20m per year free cash flow run-rate it would be on an EV / FCF multiple of around 13.7, which does not seem unreasonable given the short term tailwinds.

NextEd is up around 12% since I wrote in November 2022 that “it’s worth a spot on your watchlist as a short term momentum play on the “return of international students” theme.” Although I still don’t own myself this remains an attractive short term play for that theme, in my view.

Fineos (ASX: FCL)

Fineos had a disappointing quarter, with receipts from customers down and cash burn of over €13 million. At the end of the quarter, the company had about €24 million in cash, so it is fair to say that won’t last long at the current rate of burn.

However, the company said that “the vast majority or related receipts for Subscription Revenues fall due for collection in the third Quarter,” so it is very likely that the result will be a lot stronger next quarter. 

While the company says “Cash balance supports organic growth initiatives as planned,” it wasn’t clear to me whether that means they can reach free cash flow positivity without raising more capital. In any event, the top line growth isn’t that strong and the stock is trading on around 3.6 times trailing twelve months receipts (much of which is not recurring in nature).

Unfortunately for shareholders, this quarter was weak on both receipts from customers and free cash flow. The company will truly need to improve next quarter. On top of that, the changes at management level (replacement of interim CFO) and the board, may give investors pause. 

SciDev (ASX: SDV)

SciDev sells chemistry and water treatment technology with end-to-end support from specialist scientists and engineers. In Q2 FY 2023, receipts were up, but so too was free cash burn, increased to around $2.4 million. 

Nonetheless, I believe this was a positive quarter, since  this quarter would have been positive free cash flow but for the $3.6 million payment for the past acquisition of Haldon Industries which SciDev acquired in May 2021. Incidentally, the founder of Haldon became CEO of SciDev in May 2022.

Taylor Collinson estimate SciDev will reach breakeven in FY 2023, and if so, you could argue the $80m company is at an inflection point right now.


While I like to follow all the companies covered above, I was more impressed by these 2 top quarterly updates from little known small companies.

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Disclosure: Of the companies mentioned above, the author owns shares in RCW and RZI, and will not trade them for at least 2 days following this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937).

The information contained in this report is not intended as and shall not be understood or construed as personal financial product advice. Nothing in this report should be understood as a solicitation or recommendation to buy or sell any financial products. Equity Story Pty Ltd and BlueTree Equity Pty Ltd t/a A Rich Life do not warrant or represent that the information, opinions or conclusions contained in this report are accurate, reliable, complete or current. Future results may materially vary from such opinions, forecasts, projections or forward looking statements. You should be aware that any references to past performance does not indicate or guarantee future performance.