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2 small cap ASX shares to buy that are growing quickly

This article is about 2 small cap ASX shares that are growing and could be worth buying. One idea is Australian Ethical Investment Limited (ASX:AEF).
The post 2 small cap ASX shares to buy that are growing quickly appeared first on The Motley Fool Australia. –

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There are some small cap ASX shares that are growing really quickly and could be worth looking into.

Businesses with a small market capitalisation have the advantage of being much earlier on in their growth journeys and could generate more capital growth, unlike large blue chips which have already become major players in their industry.

With that in mind, here are two small cap ASX shares that could be worth looking into:

Sezzle Inc (ASX: SZL)

Sezzle is a buy now, pay later (BNPL) business on the ASX.

Many businesses in the BNPL industry are growing quickly. Sezzle just announced its growth for the fourth quarter of 2020.

The small cap ASX share said that the fourth quarter underlying merchant sales (UMS) went up by 205.4% year on year to US$320.8 million, this was growth of 40.6% quarter on quarter. December’s UMS beat November’s UMS by 0.4%. The annualised run rate reached US$1.36 billion.

Average monthly UMS reached US$106.9 million in the fourth quarter of 2020, compared to US$76.1 million in the third quarter of 2020 and US$35 million in the fourth quarter of 2019.

Merchant fees as a percentage of UMS were 5.4% in the fourth quarter of FY20, compared to 5.5% in the fourth quarter of 2019. This reflected Sezzle’s expansion into large enterprise.

Active consumers for the 2020 fourth quarter went up 143.9% year on year to 2.2 million. This was an increase of 24.5% quarter on quarter.

Active merchants went up 166.6% year on year in the fourth quarter to 26,690, which represented growth of 27.8% quarter on quarter.

The small cap ASX share said that its consumer profile continued to improve as active consumer repeat usage grew to 89.8%, which represented two years of consecutive monthly improvement. Management said this is a key driver for lower loss rates.

In terms of merchant fees for Sezzle, it grew by 195.6% year on year to US$17.2 million.

Sezzle also said that it is now experiencing omnichannel traction with large enterprise. In the fourth quarter of 2020, it became available at Fortune 500 company GameStop, which is the world’s largest retailer of video games and Sezzle is now available at GameStop’s more than 3,300 retail stores, as well as online and in its mobile app. Sezzle is also available at Pure Hockey, the US’ largest hockey retailer.

Australian Ethical Investment Limited (ASX: AEF)

Australian Ethical is a fund manager that focuses on ethical investments on behalf of investors. It offers both superannuation and managed funds.

Funds under management (FUM) growth is an important contributor to the growth of profit for fund managers.

About a month ago the small cap ASX share gave an update about its profit expectations and FUM movements.

At 30 November 2020, Australian Ethical’s FUM had risen by 14% to $4.92 billion, up from $4.32 billion. This was 21.6% higher since 30 June 2020. This increase was driven by “exceptional investment performance of $0.43 billion and strong net flows of $0.18 billion in October and November.”

Australian Ethical is expecting underlying net profit after tax for the six months ending 31 December 2020 to be between $4.6 million and $5.1 million. The mid-point of that range represents an increase of 11% on the six months ending 31 December 2019.

Strong growth in FUM was partially offset by the impact of superannuation fee reductions including those implemented in the second half of FY20 and fee and threshold reductions across some managed funds in October. The idea is that lower fees may attract more FUM over time.

Australian Ethical said it continues to invest in its growth strategy and anticipates that revenue will exceed $50 million this financial year, with associated tax rate adjustments.

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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 Australian Ethical Investment Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia has recommended Australian Ethical Investment Ltd. and Sezzle Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 2 small cap ASX shares to buy that are growing quickly appeared first on The Motley Fool Australia.

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