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Due to the strong potential returns on offer at the small side of the market, having a little exposure to it could be a good thing for a portfolio.

With that in mind, I have picked out two small cap ASX shares that have been named as buys. They are as follows:

MNF Group Ltd (ASX: MNF)

MNF Group is a leading provider of Voice over Internet Protocol (VoIP) technology to businesses and consumers.

Its technology allows users to make telephone calls over the internet. Which, with the NBN rollout removing traditional telephone lines, is an increasingly important service.

MNF has been growing its recurring revenue at a solid rate for a number of years. This has continued in FY 2021, with first half recurring revenues increasing 15% to $55.7 million.

Positively, MNF look well-placed to continue this trend in the coming years. This is thanks to structural tailwinds and its expansion into Asia.

With its half year results, management advised that it is close to launching in Singapore and is looking into entering a further six markets in the region.

Morgan Stanley is positive on the company. It currently has an overweight rating and $6.30 price target on its shares.

SILK Laser Australia Limited (ASX: SLA)

SILK Laser is a growing laser, skin care, and cosmetic injections company.

Last month SILK released its half year results and revealed that its growth has continued despite the pandemic.

For the six months ended 31 December, SILK reported a 62% increase in network sales to $44.9 million, a 78% lift in revenue to $30.6 million, and a 305% jump in net profit to $4.7 million.

Underpinning this growth was strong like for like sales and the addition of four new clinics. This brought SILK’s network to a total of 56 clinics across the country. Pleasingly, this is still well short of its current target of 150 clinics, which gives it a long runway for growth.

Macquarie is a fan of the company. It currently has an outperform rating and $9.50 price target on its shares.

More reading

• 3 small cap ASX shares to watch in 2021
• 2 ASX tech shares rated as buys by brokers
• These 3 ASX shares have just stormed to record highs

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. 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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Tabcorp Holdings Limited (ASX: TAH) shares slipped today after the company announced a strategic review of its operations. At the close of trade today, the Tabcorp share price was trading at $4.69, down 2.7%

Let’s take a closer look at what the company announced.

Tabcorp share price slides after update

In early February, the Tabcorp share price went flying when news began circulating about a potential buyout of part of the gaming giant’s business. A media report in The Australian revealed that Tabcorp received a proposal to break up the $9 billion betting company. However, despite a release at the time stating the company was assessing the proposals and would update the market in due course, Tabcorp has remained tight-lipped on the matter. 

Today, however, Tabcorp confirmed the company had received a number of “unsolicited approaches” and proposals. Furthermore, it was revealed that the offers were predominantly for the company’s wagering and media businesses, which were valued at $3 billion in the offer.

In review, the Tabcorp board has decided the proposals are not of sufficient value. As such, the offers will be rejected.

However, in light of the interest, the company has decided to perform a strategic review of the company. This is in order to assess structural and ownership options to maximise the value of the company for the shareholders.

Could wagering and media still be sold?

Notably, the company made clear there was still a possibility that its wagering and media division could be sold off. This could be done through a third party or even as a demerger.

A demerger would involve the separation of the wagering and media businesses or its lottery and keno division. Consequentially, the company is also reviewing its gaming services business.

Management comments

Tabcorp chair Steven Gregg said of the review:

The assessment of Tabcorp’s strategic and ownership options includes, but is not limited to, a demerger or sale of one or more of our businesses.

Our clear objective is to ensure that we fully maximise the value of Tabcorp’s gambling entertainment businesses for our shareholders.

What now

With no timeframe allocated to the review, shareholders will have to remain patient for the next parcel of information.

The review is being undertaken by the Tabcorp board of directors. In the meantime, the search for a new CEO has been put on hold until the review is completed.

More reading

• Compared! How are ASX gaming share prices performing?
• Tabcorp (ASX:TAH) share price falls as demerger speculation continues

Motley Fool contributor Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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The Province Resources Ltd (ASX: PRL) share price left the market scratching its head after surging 450% from 2.5 cents to 14.5 cents on 17 February.

This was followed by significant profit-taking as its shares tanked almost 50% in value the next day to 7.5 cents. 

More than one month on, shares in the gold and nickel exploration company have found their way back up to record territory. Even though it’s down 9.6% at the time of writing, the Province share price is trading at 14.5 cents.

What did Province announce today?

In this morning’s release, Province advised that it had started collecting wind and solar data at its HyEnergy Zero Carbon Hydrogen Project. 

The HyEnergy project is in Western Australia’s Gascoyne Region and covers a flat-lying arid landscape. This region possesses significant solar and wind potential. The company previously noted that its annual mean wind speed of 25.5 km/h ranked it as the 4th windiest location in the state. The region also averages 211 sunny days per year, making it a very rich solar resource with low competing land use. 

The company said collecting wind and solar data involved the installation of a Fulcrum3D SODAR (sonic detection and ranging) weather monitoring station on site. This will assess the wind and solar resource potential for the area. 

Fulcrum3D’s flagship SODAR system is one of only 5 remote sensing instruments globally. The data collected will enable the proposed wind turbines and solar array network to be optimised before the final project scope and scale decision point. 

Words from management

Commenting on the progress, Province managing director David Frances said:

It is great to be able to hit the ground running on the exciting HyEnergy green hydrogen project, I look forward to progressing the feasibility studies as quickly as possible.

One of the company’s objectives over the next 12 to 18 months includes starting feasibility studies for renewable power generation and green hydrogen production. This will allow the company to build the foundations for a pilot trial of green hydrogen and green ammonia production. 

Despite the good news, the Province share price found itself 6.45% lower on Monday. Some of the weakness may be attributed to the sell-off in small-cap shares, with the ASX Small Ordinaries index down 0.85% this afternoon. 

Early days for Province Resources share price

Province is in its early days, having made the transformational acquisition just one month ago. 

The company believes that green hydrogen produced from renewable sources such as wind and solar energy looks set to play a significant role in navigating society towards a decarbonised future and meeting the global aim of net-zero emissions by 2050. 

The overall scope of the HyEnergy project is to generate 1 gigawatt of renewable energy for the large scale production of approximately 60,000 tonnes of green hydrogen or up to 3000,000 tonnes of green ammonia for domestic and export markets.

More reading

• Hydrogen far from ‘fool cells’: EV trends and the major ASX players
• These small cap ASX shares surged more than 100% in February
• The Province Resources (ASX: PRL) share price zooms 10% higher today. Here’s why

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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The Orbital Corporation Ltd (ASX: OEC) share price flew higher in late-afternoon trade following the announcement of a new agreement. At the end of today’s market session, the advanced aerospace manufacturer’s shares finished at 93.5 cents, up 6.8%.

What’s lifted the Orbital share price?

Investors were picking up the Orbital share price throughout the day after announcing a lucrative deal.

According to its release, Orbital advised it has signed an engine development and supply agreement with Textron subsidiary, Lycoming Engines.

Under the framework, Orbital will engage in a 12-month engine development program to integrate its technology into Textron Systems’ Aerosonde platform. This will see Orbital’s use the design of its unmanned aerial vehicle (UAV) core engine, including its patented fuel and engine control systems.

Textron subsidiary, Textron Systems is a leading international firm specialising in unmanned aircraft systems. The company is one of the largest suppliers of tactical UAVs to the United Stated military.

Once all checkpoints have been successfully met, the agreement will transition into a supply contract. Orbital will deliver the newly-integrated engines along with spare parts and support services to Lycoming over a minimum 5-year period. At the end of the contract, Lycoming has the option to renew the deal for an additional five one-year extensions. Delivery of the production engines is expected to be no earlier than the fourth quarter of FY22.

Orbital noted that its revenue guidance for the current financial year remains the same, between $30 million to $40 million. However, future revenue guidance cannot be determined until the successful completion of the engine development program, and known scheduling engine deliveries.

What did management say?

Orbital UAV CEO and managing director Todd Alder commented:

We are delighted to announce this major new collaboration with Lycoming and to be working with Textron Systems on a joint development program.

This relationship further enhances our status within the global UAV defence industry and provides the opportunity to increase our market share and deliver on our strategic growth objectives

Textron Systems, senior vice president of air systems Wayne Prender went on to add:

For more than four decades, Textron Systems has been designing, manufacturing, operating and supporting some of the world’s most reliable and trusted multi-mission unmanned aircraft, including the Aerosonde and Shadow systems.

Orbital UAV’s heavy fuel technology and design expertise coupled with Lycoming Engines’ World Class reputation further supports Textron Systems’ industry-leading UAV mission readiness rates and reputation for reliability and durability.

The Orbital share price has gained over 100% in the past 12 months, but has fallen 20% year-to-date.

More reading

• ASX 200 dips lower, Webjet drops, REA bids for Mortgage Choice
• ASX stock of the day: Integrated Research (ASX:IRI) shares up 7%
• Here’s why the 88 Energy (ASX:88E) share price is accelerating 12% today
• Why Macquarie thinks the BHP (ASX:BHP) share price and 2 others will outperform
• 2 highly-rated ASX growth shares to buy

Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Orbital Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why the Orbital (ASX:OEC) share price ended the day up 6% appeared first on The Motley Fool Australia.

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The S&P/ASX 200 Index (ASX: XJO) fell by around 0.4% today to 6,800 points.

One of the main highlights, or lowlights, of the day was the latest lockdown implemented in one of Australia’s largest cities.

These are some of the might news stories of the day:

ASX travel shares drop

The ASX travel sector saw a bit of a decline today after it was announced that the Greater Brisbane region would be going into a three-day lockdown to try to stop the spread of COVID-19.

Coming up to Easter, this is just the news that businesses linked to tourism didn’t want to hear.

The Webjet Limited (ASX: WEB) share price dropped 2.8%, the Flight Centre Travel Group Ltd (ASX: FLT) share price fell 3%, the Qantas Airways Limited (ASX: QAN) share price dropped 0.8%, the Corporate Travel Management Ltd (ASX: CTD) share price fell 1.6% and the Helloworld Travel Ltd (ASX: HLO) share price fell 2.7%.

REA Group Limited (ASX: REA) and Mortgage Choice Limited (ASX: MOC)

The Mortgage Choice share price shot higher by around 62% today after it was announced that REA Group wanted to buy the mortgage broking business. However, the REA Group share price fell 1.9%.

REA Group has entered into a scheme of arrangement to buy Mortgage Choice at a share price of $1.95 per share. The offer represents an enterprise value of approximately $244 million.

It has a loan book of $54 billion and settlements of $11 billion in the 12 months to December 2020. Mortgage Choice reported net revenue of $22.2 million and net profit after tax of $4.1 million for the six months to 31 December 2020.

REA Group said that this aligns with its financial services strategy, it would provide a compelling opportunity to establish a leading mortgage broking business with increased scale and it would complement the existing Smartline broker footprint resulting in greater national broker coverage.

The proposed transaction is expected to be immediately earnings per share (EPS) accretive for REA Group with the potential for future cost and revenue synergies.

Mortgage Choice Chair Vicki Allen said:

This is a fantastic milestone for Mortgage Choice. Joining the REA network creates a significant opportunity to leverage its deep digital capabilities and expertise, combined with access to a large and engaged consumer audience.

REA Group is going to fund this deal with its debt facilities. The board of Mortgage Choice have unanimously recommended that shareholders vote in favour of the takeover.

Synlait Milk Ltd (ASX: SM1)  

The Synlait share price fell more than 4% today after the dairy manufacturing business announced its FY21 half-year result. It suffered a significant decline of profit.

Revenue grew by 19% to $664.2 million. However, earnings before interest, tax, depreciation and amortisation (EBITDA) went down 29% to $47.7 million and net profit after tax was down 76% to $6.4 million.

Synlait said that it’s continuing to experience significant uncertainty and volatility within its business. As a result of that, particularly because of ongoing uncertainty with A2 Milk Company Ltd (ASX: A2M) demand, the company’s current outlook suggests a broadly breakeven FY21 net profit result.

The Chair of Synlait, Graeme Milne, said:

Our first half was challenging, and we continue to find ourselves in a period of significant uncertainty and volatility as Synlait faces into several headwinds. This is impacting our short-term operations and will impact our full year 2021 financial result.

More reading

• Why Immutep, Inghams, REA Group, & Synlait shares are sinking
• Will the ASX 200’s ‘China problem’ get worse?
• Why the St Barbara (ASX:SBM) share price is climbing
• Why top brokers want you to buy the embattled IAG (ASX:IAG) share price
• ASX 200 down 0.1%: Computershare raises $500m, REA Group announces acquisition

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Helloworld Limited. The Motley Fool Australia owns shares of and has recommended A2 Milk, Corporate Travel Management Limited, and Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited, Helloworld Limited, and REA Group Limited. 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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The Integrated Research Limited (ASX: IRI) share price had a superb day today. Integrated Research shares closed the day up 7.66% to $2.39 a share after closing at $2.21 last Friday and opening at $2.30 this morning. The shares were as high as $2.43 during intra-day trading as well, a rise of more than 9% at the time.

However, zooming out and it becomes clear that today’s moves are just some sugar on what has been a very unpleasant sandwich investors have had to endure over the past year. Even after today’s gains, Integrated Research shares are still down more than 50% from the company’s 52-week high of $4.92 that we saw back in August last year. They are also at a similar level to what you could have purchased them for back in 2015.

So who is this company? And why are Integrated Research shares doing so well today?

A well-integrated company?

Integrated Research is a company that trades in IT solutions. It writes and sells software platforms that assist business clients in simplifying and optimising their digital operations and data. It does so through three product offerings: IR Collaborate, IR Infrastructure and IR Transact. All three of these products are available through Integrated Research’s Prognosis platform.

The company can boast some A-list clients, including Commonwealth Bank of Australia‘s (ASX: CBA) BankWest, the US telco Verizon Communications Inc (NYSE: VZ), Ford Motor Company (NYSE: F) and the US pharmacy chain Walgreens of Walgreens Boots Alliance Inc (NASDAQ: WBA).

Software-as-a-Service (SaaS) companies have been very popular with ASX investors in recent years. But, as we touched on earlier, things haven’t been going Integrated Research’s way over the past year or two. the company was hard hit by the coronavirus pandemic last year. Business closures and purchasing deferrals have resulted in revenue and profit writedowns for the company. A sharply rising Aussie dollar over the past year or so also hasn’t helped.

In fact, it was only last month that Integrated Research gave us a half-year earnings update for the six months to 31 December 2020. In this update, Integrated Research told investors that revenues were down 56% on the prior corresponding period. While net profits after tax had collapsed 99% to $129,000.

Why are Integrated Research shares up today then?

At first glance, it’s not entirely obvious why Integrated Research shares are rising so enthusiastically. The last piece of official news out of the company came back on 22 March. That was a notice that Integrated Research’s chair Paul Brandling had resigned from the company effective 20 March. He has been replaced as chair by Peter Lloyd.

The only clue we have to today’s massive share price movement is trading data from the ASX. ASX data shows that trading volume today is, at the time of writing, sitting at 448,000 shares. That’s well above the company’s 5-day average of ~190,000 shares, and well exceeding Friday’s number of 142,000 shares. This could be indicating that a large fund manager or other institutional investor has been initiating a large positioning in the company.

Whatever the cause, it has been an indisputably good day for Integrated Research shareholders. On the current share price, the company has a market capitalisation of $408.15 million.

More reading

• Afterpay (ASX:APT) share price sinks despite new product launch
• ASX 200 Weekly Wrap: ASX 200 gets its mojo back
• 3 ASX dividend shares with yields over 4% right now
• What moved the Commonwealth Bank (ASX:CBA) share price this week
• Why is the Woolworths (ASX:WOW) share price up 5% in a week?

Sebastian Bowen owns shares of Ford. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Integrated Research Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Verizon Communications. The Motley Fool Australia has no position in any of the stocks mentioned. 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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The 88 Energy Ltd (ASX: 88E) share price is on the move today after the company announced an operations update. During mid-afternoon trade, the energy exploration company’s shares are swapping hands for 3.5 cents, up 12.9%.

Let’s take a close look and see what 88 Energy updated the ASX with.

What did 88 Energy announce?

Investors are pushing the 88 Energy share price higher after positively receiving the company’s latest news.

In its announcement, 88 Energy advised it has detected potential hydrocarbon-bearing zones whilst conducting drilling operations at its Merlin-1 well. The site is located within the company’s Project Peregrine in the northern area of the National Petroleum Reserve, Alaska (NPR-A).

88 Energy revealed that the Nanushuk Formation, which consists of the primary targets for the Merlin-1 well, was found to be roughly 600 feet low to prognosis. In addition, it is estimated to be around 500 feet thicker than that encountered in the Willow Oil Field, north of the Project Peregrine.

The drilling data highlighted that the gamma log indicates the presence of more sand packages than in the Willow Oil Fields. Furthermore, it stated that sand packages in the Merlin-1 well are generally cleaner in nature. However, the reservoir quality is expected to be known when the wireline logging is complete.

The company said that oil shows were recorded over multiple intervals n the Nanushuk while drilling Merlin-1. It also observed relatively weak to moderate ‘dry’ fluorescence with slow-to-moderate and sometimes fast streaming cut when exposed to solvent.

Mud gas peaks were documented, but of not the same scale as in the Willow Oil Fields. One of the prospective targets in the Merlin-1 well however did record elevated total gas. Heavier gas components, including C5, was observed over multiple intervals. Fluorescence was observed in the drilling mud.

Whilst the results are encouraging, 88 Energy will complete the wireline program over the next week to confirm the hydrocarbon find.

Management commentary

88 Energy managing director Dave Wall briefly touched on the initial results, saying: “Whilst there is still work to do to confirm a discovery, the results to date are encouraging and we look forward to providing an additional update on the wireline program in 7 to 10 days.”

About the 88 Energy share price

Over the past 12 months, the 88 Energy share price has jumped over 100%, with year-to-date, rising above 300%.

On valuation grounds, 88 Energy commands a market capitalisation of around $425.7 million, with a mammoth 12.5 billion shares outstanding.

More reading

• Afterpay and Zip were among the most traded ASX shares last week

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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Shares in BHP Group Ltd (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO) have struggled to make headway after going ex-dividend earlier this month.

Sky-high iron ore prices saw record dividends flow through to investors, with an average dividend yield of 9.33% between the BHP share price and the other 2 ASX mining giants.

However, shares typically fall on the ex-dividend date to reflect the dividend being paid. The greater the dividend, the greater the fall.

Meanwhile, over in China…

China has made its move to tighten environmental regulations over the next few years. Earlier in March, the country’s industrial hub, Tangshan, was ordered to limit or halt production on days when a heavy pollution alert was in place.

Producers were ordered to reduce the overall emission of air pollutants by 50 per cent. There are increasing concerns that this could see the iron ore market return to a surplus. Last week, Morgan Stanley analysts warned that this move could be the beginning of major iron ore headwinds. 

Despite the announcement from Chinese authorities, the iron ore spot price has remained relatively buoyant at US$166 per tonne, slightly down from its high of US$173 per tonne in early March. 

Broker rates BHP share price, Fortescue and Rio Tinto as ‘outperform’

Macquarie Group Ltd (ASX: MQG) believes there could be stronger demand and prices for commodities, including iron ore, manganese and thermal coal. The broker upgraded its forecast for the respective materials by 18%, 22% and 17%. 

The broker notes that its preference for the BHP over Rio Tinto has narrowed. But reiterates an outperform rating with a $57 target for the BHP share price. This represents an upside of 25% at today’s prices, excluding its 6.10% dividend yield. 

Similarly, the broker’s update retained an outperform rating for Fortescue. However, it has lowered its target price from $25.50 to $23.00 on rolling forward to FY22 earnings multiples. This represents an upside of 13% at today’s prices. Fortescue also pays a market-leading dividend of 13.10%. 

Finally, Macquarie is also bullish on Rio Tinto shares but reduced its target price from $142 to $140 to reflect movements in exchange rates. If Rio Tinto meets the price target, it will return 25% from today’s prices. 

More reading

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• Leading brokers name 3 ASX shares to buy today
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• ASX 200 Weekly Wrap: ASX 200 gets its mojo back
• 3 ASX dividend shares with yields over 4% right now

Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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If you’re wanting to boost your portfolio with some quality growth shares, then you might want to take a look at the ones listed below.

Here’s why these quality ASX growth shares have been tipped as ones to buy right now:

Domino’s Pizza Enterprises Ltd (ASX: DMP)

The first ASX growth share to look at is this pizza chain operator. Domino’s has been growing at a strong rate over the last decade thanks to consistent like for like sales growth and the expansion of its store network footprint.

Positively, this strong form has continued in FY 2021. Last month Domino’s released its half year results and revealed a 16.5% increase in total global food sales to $1.84 billion.

While its top line growth was impressive, its bottom line was even more so. Thanks to operating leverage, Domino’s delivered a sizeable 32.8% increase in underlying net profit after tax to $96.2 million.

But perhaps best of all, is that management is expecting an even stronger performance in the second half. In light of this, Domino’s looks set to deliver a bumper full year profit in FY 2021.

Analysts at Macquarie are confident this will be the case. As a result, they have put an outperform rating on its shares and lifted their price target to $120.20.

Kogan.com Ltd (ASX: KGN)

Another ASX growth share that is highly rated is Kogan. Like Domino’s, this ecommerce company has been in fine form during FY 2021.

For example, during the first half of FY 2021, Kogan reported a 96% increase in gross sales and a 140% jump in earnings before interest, tax, depreciation and amortisation (EBITDA).

This strong growth was driven by a surge in customer numbers, increased repeat customer rates, acquisitions, and the accelerating shift to online shopping.

One broker that believes Kogan is well-placed for growth over the long term is Credit Suisse. At the start of the month its analysts put an outperform rating and $21.08 price target on its shares.

More reading

• 2 ASX dividend shares to buy in April
• $10,000 invested in the Kogan (ASX:KGN) IPO is worth how much today?
• Got money to invest? Here are 2 ASX shares to buy
• 2 great value ASX growth shares to buy today
• Is Temple & Webster (ASX:TPW) the best e-commerce ASX share to buy right now?

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Dominos Pizza Enterprises Limited and Kogan.com 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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After a strong rally over the second half of 2020, shares in ASX workplace management consultancy Damstra Holdings Ltd (ASX: DTC) have come off the boil more recently.

Since touching a new all-time high of $2.44 in October of last year, the Damstra share price has plunged more than 50% to just $1.13 as at the time of writing. So, what has driven the massive decline?

First, a little background on Damstra

The company develops tailored workplace management solutions for corporate clients operating in specialised industries like mining, construction and energy and utilities.

Damstra partners with these organisations to develop systems and processes that will protect the safety of their employees and also help them to meet regulatory compliance standards.

It has already racked up an impressive client list, including ASX energy company AGL Energy Limited (ASX: AGL), Swiss multinational Glencore, and construction and engineering company John Holland.

Recent financials

Damstra released its first-half FY21 results to the market in February. The company reported a 30% jump in revenue versus the prior comparative period (to $13.3 million). Despite this strong top-line growth, pro forma earnings before interest, tax, depreciation and amortisation expenses (EBITDA) actually edged down 1% to $2.5 million.

The drag on earnings came from the costs associated with the acquisition of Vault Intelligence Limited, which completed in October. Vault develops workplace management technology that helps companies involved in potentially dangerous industries such as transport and logistics, construction, or mining, to monitor their employees’ safety and prevent accidents.

Despite Vault being a loss-making company, Damstra saw enough potential business synergies to acquire it.

Damstra’s target for synergies for the first 12 months after the acquisition was $4 million, which it subsequently upgraded to $5.2 million in the release of its first-half results. Damstra reported that Vault had been integrated ahead of plan, with Vault’s flagship safety platform, Solo, now part of Damstra’s product suite.

So why the decline in the Damstra share price?

It’s easy to blame the Damstra share price decline on risk-averse investors who were spooked by the company’s underwhelming first-half earnings result. However, in truth, the share price decline had begun well before the release of its first-half results.

A possible contributor to the drop in Damstra’s share price may simply be dilution from the Vault acquisition. Damstra issued almost 45 million new shares to Vault shareholders as part of the deal.

This flood of new shares put downward pressure on the company’s share price around the same time many tech growth stocks were beginning to suffer the effects of a broader sector-wide correction.

Long-term shareholders will be hoping that this might mean the dip will only be temporary. And even in just the last few weeks, the Damstra share price has shown some tentative signs of recovery, up almost 24% since bottoming out at a lowly $0.92 in early March.

More reading

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Rhys Brock owns shares of Damstra Holdings Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Damstra Holdings Ltd. The Motley Fool Australia has recommended Damstra Holdings 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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