Australian Financial Review
Do Senetas Corporation, Prophecy International or Hansen Technologies sound familiar?
Probably not. But just because they're not big-name companies doesn't mean they're not enjoying big growth. In the past year a number of micro- and small-cap technology stocks have outperformed the major players, their share prices growing by more than 70 per cent.
These companies have a few characteristics in common: they are software or services-focused, they have an overseas presence and they operate in growing markets.
Software developer Prophecy International Holdings is benefiting from the growth in the cyber security industry. The stock has increased 200 per cent in 12 months, up from around 49¢ to $1.47.
In March, Prophecy announced that the sales of its products were up 100 per cent on the previous year. It is on track for record revenue of $9.8 million for the 2014-15 financial year.
Also benefiting from the increasing prominence of cyber security attacks is Senetas Corporation, which provides data encryption hardware to major corporations and governments.
The share price has leapt more than 333 per cent from 3¢ to 13¢ in the past 12 months.
In its half-year results announcement in February, the company recorded a 97 per cent increase in maintenance services revenue. Its net profit before tax was also up nine times to $2.82 million from $306,000 in the previous corresponding period.
Fund manager of the Pengana Emerging Companies Fund, Steve Black, said recurring revenues meant the company had consistency – a factor important to investors.
"If you have a product that is fully integrated in a technological sense into a customer's systems... then as an investor you've invested in a company with a recurring revenue stream," he said.
Mr Black said this is also the case with two stocks which the Pengana Emerging Companies fund is invested in.
"It's hard for customers to turn off Infomedia's parts management systems or Altium's circuit board technology because it's embedded in the systems, so the companies have largely recurring income streams."
Altium, a software company which provides PC-based electronics design software, has 53 per cent of its total revenue based on subscriptions. It also has a strong international presence, with its revenue composed of 34 per cent Americas, 43 per cent Europe, 15 per cent China and 8 per cent Asia-Pacific.
Its share price has risen from $2.43 to about $4.35 in the past year, a 79 per cent jump.
Mr Black said companies with a strong international presence were well-placed for growth in the coming year.
"With the Australian dollar falling away, many tech companies have had a free kick in terms of earnings, because many have overseas domiciles," he said.
"The Australian dollar falling has acted as a catalyst to spur investment in these companies."
Global provider of customer care, billing and meter data management software of utilities, pay TV and telecommunications companies, Hansen Technologies, has a presence in more than 45 countries.
In the past year its shares have bounced more than 112 per cent from about $1.32 to $2.80. For the half-year it reported earnings per share of 5.4¢, up 20 per cent from the previous year.
GBST Holdings, a software provider to the financial services industry, also has a significant international presence with most earnings coming from overseas.
It has enjoyed notable share price growth in the past year of more than 79.4 per cent to $5.74, although in recent months it has been rocked slightly by the sharemarket's volatility and the collapse of stockbroking firm BBY – it is owed $640,000.
Shares in sports technology firm Catapult Group have surged since it listed in December 2014, trading up 127.3 per cent. Its share price has increased from its issue price of 55¢ to trade about $1.21.
The company manufactures and sells global-positioning and indoor-tracking systems for elite sportspeople. One of its big name investors is United States billionaire Mark Cuban.
Cloud software licensing company Rhipe has expanded to Malaysia, Indonesia, Thailand, Singapore and the Philippines in the past two years.
Its shares have gone up about 87.3 per cent in the past 12 months from 75.8¢ to $1.42.
Telsyte managing director Foad Fadaghi said Rhipe was under less threat from consolidation in the cloud market because it re-sells products, tipping the stock to perform well in the next year.
"Rhipe is very closely aligned with Microsoft's products and as we're entering into the Microsoft replacement cycle for businesses using Microsoft desktops and Lync... It's a good place for it to be in," he said.
"The riskier investments are around hardware... revenue is often lumpy and not as annuity-based. Services-based companies are definitely what we'd consider as having more potential for growth."
Other stocks which performed well over the past year included Integrated Research, MGM Wireless and Codan Limited – all of which had share price growth above 50 per cent.
Hyperion Asset Management investment analyst Joel Gray said investors should mitigate the risk of investing in small stocks by picking companies with a proven track record.
"You can play in the small space, but wait for these businesses to give you confidence that they will be around in the longer term and that their model is sustainable," he said.
"We don't invest in businesses based on promise. We might miss the initial stages of the share price running, but we
reduce the risk considerably."