The microcap segment of the Australian equities market is set to generate strong returns over the next 12 months, according to a specialist manager operating in the space.
“Stock valuations have fallen to low levels. However, the Australian financial system remains in good order and microcap companies are expected to deliver solid earnings growth over the coming year, underpinned by continuing strong demand from emerging nations, particularly China,” Contango Microcap chair David Stevens said at the presentation of the organisation’s results for 2010/11.
“Conditions are likely to remain volatile across all sections of the Australian market but the microcap segment is well positioned to deliver strong profitability,” he said.
According to Contango Microcap national distribution manager Boyd Peters, the sector will be well placed to perform well next year due to the relative health of the Australian economy.
“The Australian economy is still well placed to weather any global downturn, with plenty of firepower at the disposal of the Reserve Bank of Australia and the Australian government,” Peters said.
“Also the large amount of engineering construction occurring over the coming years (many of which are long term projects that should continue regardless of the global backdrop) will support economic growth. Notwithstanding the current volatility, the solid medium-term outlook for the Asia-linked Australian economy should support improvements in the equity market over time.”
He said astute investors would be looking forward to a return in market confidence.
“At which point those oversold microcap companies – and particularly those which demonstrate an accumulation of value – may be poised to deliver solid returns to patient shareholders,” Peters continued.
Contango Microcap announced an operating profit of $42.2 million for the year ended 30 June 2011.
In addition, the reported after-tax net tangible assets of the company increased by 24.2 per cent.
The gross return delivered over this period from the firm’s investment portfolio was 37.2 per cent.
This compared favourably to the S&P/ASX All Ordinaries Accumulation Index that returned 12.2 per cent for the 2010/11 fiscal year.
