Well with February's chaos of reporting season out of the way and another solid return of 4.82% for the S&P/ASX Emerging Company Index in February 2019, we continue to hope for a good year. This performance was however still a ways behind the top 200 titans with the S&P/ASX 200 reporting a very impressive 5.98% return for the month of February. 

This month I wanted to focus on two new stocks which have come to the ASX boards in recent times and reported their maiden set of results since listing. 

Straker Translations Limited (ASX: STG)  reported in its January appendix 4c that it was cashflow positive for the quarter. This is always a big milestone for any microcap stock and a key indicator for me. If the name didn't give it away the company is involved in providing translation services. However, this is not the stuff you can get out of google translate. Straker is dealing with enterprise customers and governments. Think about it, say you are a Spanish food brand expanding into Africa, for example, and you need nutritional information and ingredients and any other regulatory information translated into English, Portuguese, French and Arabic (which would cover most African markets) would you rely on Google translate for that? Similarly, a healthcare company or government department working in India where you are distributing basic medicines or healthcare services and you need a leaflet with instructions printed in to say Bengali and Hindi for example, well this is where Straker comes in. With the advent of AI and machine learning, they can speed up translations through their Ray software platform and keep the costs down by only engaging freelance translators at to review and correct linguistic nuances at the end. As global commerce continues to operate more on a global scale the need for translation services for companies products, services and customers should provide a nice tailwind to Straker's business. At this point in its development, it looks interesting.

Jayride Group (ASX: JAY)  Very simply think Uber for airport transfers and you get the picture of what service Jayride offers to its customers. The company is currently operating in 44 countries around work and in nearly 700 airports. If you are travelling in say a large group how do find suitable airport transport for say 8 people and their luggage and how do you compare prices efficiently and easily when you do? Jayride seeks to solve this problem. They can solve it whether you want to do it yourself or you are some like Flight Centre or Expedia selling a package to your customer by throwing up a range of operators and costs and allowing you to make an informed decision about what you are willing to pay. The company is in the very early stages of a global rollout program so it is not yet profitable or cashflow breakeven..  It is, however, showing strong growth metrics in terms of bookings and revenue growth and they do outline in their investor presentation what sort of profits the company could generate in the future subject to continued growth or the "aspirational economics" of the business as they term it. Given we are in the midst of the hype about Uber and Lyft's IPO's it will be interesting to see what IPO price multiples they attract which one could then apply to Jayride minus whatever discount you want to factor in. Thinking more long term if I was Uber of Lyft I might consider this a nice bolt on business and cross-sell the offering into my existing customers when they travel, especially in groups. Its early days for Jayride but its one of the more interesting technology business I have seen recently. 

Now with reporting season complete your email inbox will no doubt be full of updated broker notes on various microcaps stocks. A lot of these microap stocks since they are probably not yet profitable will be valued on a discounted cash flow basis (DCF) using some or other weighted average cost of capital (WACC) figure. One of the things I do when I see any of these is to check the figures that go into the WACC calculation and the final output to make sure they are realistic given the risk profile of most microcap stocks. My benchmark rate for "safe" assets is the WACC calculated by independent pricing and regulatory tribunal of NSW or IPART. They calculate the WACC to be used for infrastructure projects and operating licenses around the state. The great thing is they release a report twice a year (Feb & Aug) with their latest WACC number with all the input variables and where they got them from. However, best of all they provide a comprehensive spreadsheet you can play around with yourself to utilise for stock valuation simply by tweaking it a bit. IPART did a rigorous review of how they calculate WACC last year looking at various academic financial models and literature around calculating WACC and their input variables. You can be confident in using iPART's WACC figure as a low-risk baseline onto which you can build in/add on a premium for the risks associated with microcap stocks or any stocks for that matter. You can also use IPARTS's reviews and model variables to question brokers, analysts and fund managers about why they are using certain values in their DCF models. 

Microcap Fund Snapshot

With reporting season on this month, I decided to cut the fund managers a bit of slack and give them the month off. After pouring over all the results from reporting season hopefully, they will have found some great new names and ideas they can share with us over the coming months. 

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