Here’s a trio of micro-caps, in very different industries, that all look highly capable of delivering a 50% gain from current levels.
- Alliance Aviation (AQZ, $2.55)
Market capitalisation: $408 million
12-month total return: –19.6%
3-year total return: –13.9% a year
Estimated FY26 dividend yield: 3.3%, unfranked
Estimated FY26 price/earnings (P/E) ratio: 6.7 times earnings
Analysts’ consensus valuation: $3.90 (Stock Doctor/Refinitiv, three analysts); $3.80 (FN Arena, two analysts)
Contract and charter flights operator Alliance Aviation is the best airline you probably haven’t heard about. Alliance is the largest national air charter operator for the resources industry, operating a fleet of 80 aircraft (expected to increase to 90 by the end of 2026). Alliance describes itself as a “wholesaler of aircraft capacity” to a number of sectors within Australia, but its main business is moving fly-in, fly-out (FIFO) workers around Australia for mining companies, under contract. Alliance’s FIFO business is well-diversified across commodities, with gold generating 26% of FIFO revenue, followed by iron ore, on 18%, but with contracts also spread across copper-gold-uranium, nickel, coal, silver-lead-zinc, manganese and oil and gas.
This is its largest source of revenue, accounting for 48% of revenue in FY24, but its revenue dominance has come down in recent years, as the second-biggest source of revenue, ‘wet lease’ agreements, has grown. Under wet leases, Alliance owns the aircraft but leases them to Qantas and Virgin. Alliance also provides the staff and services the aircraft. This side of the business has been growing rapidly and now accounts for 41% of total revenue. Wet lease revenue rose by 63% in the 2023-24 financial year (FY24), and flight hours increased 62%.
Alliance does not have the passenger revenue risk that is typically associated with the airline industry: its revenue is steady and predictable, with much of the operating costs bult-in the contracts. For example, its FIFO contracts include the cost of fuel, meaning its margins are not affected by fuel price fluctuations.
Last month, Alliance cut its profit guidance, saying that aircraft damage, industrial action as well as issues relating to the North Queensland floods and Tropical Cyclone Alfred would mean that its original guidance expectation for pre-tax profit of $92.9 million in FY25 would come down to a range of $80 million–$85 million.
However, guidance for earnings before interest, tax, depreciation and amortisation (EBIDTA) was lifted from $202.1 million to a range of $205 million to $210 million. Alliance has weakened in share price over the last three to four years, but conversely, the quality of the business has improved greatly. There is a turnaround story here in being able to generate free cash flow, and analysts expect the market to start taking notice.
- Turaco Gold (TCG, 50 cents)
Market capitalisation: $451 million
12-month total return: 127.3%
3-year total return: 79.1% a year
Estimated FY26 dividend yield: no dividend expected
Estimated FY26 price/earnings (P/E) ratio: n/a (loss-maker)
Analysts’ consensus valuation: $1.145 (Stock Doctor/Refinitiv, two analysts); $1.29 (FN Arena, one analyst)
Turaco Gold is developing its Afema gold project in the West African country of Cote d’Ivoire, which it acquired in March 2024. The company quickly delineated and announced a maiden resource estimate of 2.52 million ounces of gold, in August 2024, and then a big drilling program enabled the company to boost that figure last month by more than 40%, at higher gold grade, to 3.55 million ounces,
Subsequently, further results from drilling along the Afema shear, at the Toilesso and Toilesso West prospects at the Jonction deposit, as well as the Begnopan prospect, strongly imply that the mineral resource estimate (MRE) should be able to be increased further. The Afema Shear is a multi-million ounce gold system. The company made the decision to mine in November 2024. Afema has four deposits, all located within the mining licence, and as broker Morgans puts it, positions Turaco Gold as one of the most attractive undeveloped gold assets on the ASX.
Where many Australian investors might see sovereign risk in West Africa, Turaco Gold says that “without question, Cote d’Ivoire is a premier jurisdiction of West Africa.” West African gold production more than doubled in past ten years to 17 million ounces a year (Australia produces 10 million ounces a year), with 67 million ounces discovered in the last ten years, from 15 discoveries – and Cote d’Ivoire has been the key contributor to this growth and discoveries, with production up six-fold in the past ten years to 1.8 million ounces a year. But Cote d’Ivoire remains significantly under-explored. Turaco’s ground covers the extension and convergence of two of Ghana’s most prolific gold belts into southeast Cote d’Ivoire, particularly the Sefwi belt: Turaco controls a majority of the Sefwi belt in Cote d’Ivoire.
There is a clear path to production. Broker Morgans outlines an initial 7-year mine life producing about180,000 ounces a year at an all-in sustaining cost (AISC) – a figure that incorporates not only the “cash cost” of production but all the costs that allow production to be sustained – of $1,681 an ounce. But exploration success and reserve expansion should be able to improve those numbers. Investors are banking on the market picking-up on the quality of Turaco’s assets – the stock looks to be an under-valued gold play.
- Step One Clothing (STP, 67.5 cents)
Market capitalisation: $123 million
12-month total return: –51.6%
3-year total return: 41.2% a year
Estimated FY26 dividend yield: 12.2%, fully franked (grossed-up, 17.4%)
Estimated FY26 price/earnings (P/E) ratio: 8.2 times earnings
Analysts’ consensus valuation: $1.775 (Stock Doctor/Refinitiv, two analysts); $1.775 (FN Arena, two analysts)
Direct-to-consumer online retailer Step One Clothing has a niche focus on anti-chafe bamboo underwear and inner wear, boosting its appeal by using a stable of professional athletes to extol the brand’s attributes. The company has definitely hit upon a good formula: repeat customers account for more than 65% of sales.
Step One started as a supplier of men’s underwear but added a women’s line as well as a sports line and thermals to its range. The product is made from what the company says is ethically sourced bamboo and is designed to maximise comfort and reduce chafing. Step One was founded in 2017. It currently operates in Australia and the UK and has recently launched in the USA. It has production and manufacturing facilities in China and Vietnam.
Step One listed in November 2021, but after a strong debut, the shares fell from $1.53 at listing to just 23 cents in late 2022. STP managed to recover to $1.88 in September 2024, but has since slid to 68 cents, on the back of concerns about Step One’s profitability and ability to grow its revenue base in the face of competition have emerged. That slide has opened up good value.
The company has to spend a lot on marketing but is making a good fist of building markets without massive investment, using its ability to scale-up quickly in the e-commerce channel. In the US, for example, STP minimised the direct investment in brand advertising and marketing it might have made, to focus on teaming with affiliates such as Amazon. However, the expansion into the US has been slower-than-expected.
What StepOne has done really well is pivot toward women, not only in bringing out a women’s line, but noticing that women are its biggest customers, buying on behalf of their husbands, partners and children.
The company’s net profit for the first half of the financial year jumped 15.1%, to $8.2 million, while revenue rose 6.8%, to $48.1 million. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) rose 10.4% to $11.2, million but sales to new customers dropped 28%. That sounds like a serious negative, but while the company would like to reverse that slide, it said strong retention rates and increased order values outweighed it to a large extent. US sales sank 61.4% to $1.6 million as the company reduced spending due to “unfavourable advertising economics”.
The company did not provide guidance for the full FY25 year, and while the US market is a problem for STP, analysts don’t think it is a problem enough to justify STP trading on 8.2 times prospective earnings – that’s too cheap. STP will continue to focus on profitable growth, expanding its range and acquiring new customers through partnerships and direct advertising. The stock looks poised for strong gains.
