The market continues to present opportunities for the strategic investor ahead of the upcoming earnings season.

Amidst recent volatility, the small-cap space remains a fertile ground for potential, as demonstrated by the latest developments in the TAMIM Australian Equity portfolios. Below are three companies held with an update on recent developments.

Viva Leisure Expands with Key Acquisitions and Membership Growth

Viva Leisure Limited (ASX: VVA), a leading provider of health and fitness clubs across Australia, has announced the early completion of three Western Australian acquisitions, marking a significant milestone in the company’s expansion strategy. Originally scheduled to finalise by the end of August 2024, these early completions will provide an additional month of contribution to the FY2025 results.

With these acquisitions, Viva Leisure introduces its Club Lime brand to its sixth State/Territory, further solidifying its position as Australia’s largest non-franchised health club brand. The acquisitions, totaling $15.7 million, include eight locations with approximately 20,000 members. These additions are expected to contribute over $3.9 million in EBITDA annually, with forecasted synergies of $1.0 million from FY2026.

CEO and Managing Director, Harry Konstantinou highlighted the company’s success, stating, “Our recent achievements mark a significant milestone for Viva Leisure. Surpassing the upper end of our revenue guidance for FY2024 underscores our relentless pursuit of excellence and growth.”

In addition to acquisitions, Viva Leisure has seen robust membership growth. Corporate memberships have exceeded 210,000, marking a 15% increase since June 2023. Network memberships have also grown to over 385,000, reflecting a 12% increase. The company now operates 180 corporate locations and 356 network locations, further establishing its market presence.

The company’s strategic refurbishment program, announced in August 2023, has also been completed successfully, with 27 locations undergoing enhancements. Plus Fitness, one of Viva’s brands, continues to break records, securing 21 new locations in FY2024 and surpassing 200 operating locations globally.

Looking ahead, Viva Leisure is poised for continued success with a strong pipeline of greenfield locations and ongoing acquisition strategies. More importantly management noted they are on track for the upper end of guidance achieved for Q4 and FY2024 revenue. The company’s full-year results for FY2024 will be released on 14 August 2024, promising a comprehensive update on these significant achievements.

Bravura Solutions: Proposed Return of Capital and Updated Guidance

Bravura Solutions (ASX: BVS) has announced a proposed return of capital to shareholders.

Contingent on receiving the necessary approvals from shareholders at the upcoming Annual General Meeting (AGM) and securing a favourable Class Ruling from the Australian Taxation Office (ATO) the company intends to distribute up to $75.3 million or 16.7 cents per share. This decision follows a thorough review of Bravura’s capital management strategy, following on from the previous management’s decision to raise capital in March 2023 and the significant transformation executed during FY24. The board has determined that the business is overcapitalised and aims to return excess capital to its shareholders within three months of the AGM, pending the requisite approvals.

This follows on from the July market update where Bravura announced an upgrade to its FY24 financial guidance.

The unaudited operating earnings guidance has been increased to approximately $25 million, up from the previously forecasted range of $18 million to $22 million. Additionally, Cash operating earnings guidance stands at around $10 million. CEO Andrew Russell attributed this upgrade to the successful execution of Bravura’s transformation strategy, which has stabilised the business and surpassed budget expectations.

We have previously discussed how we believe Bravura is a turnaround story and with the company’s proactive capital management and upgraded financial guidance position the business continues to show signs of this being the case.

Dropsuite’s Strong Q2 FY24 Results

Dropsuite Limited (ASX: DSE) reported its Q2 FY24 update displaying an encouraging set of results.

The company showcased significant growth across several key performance indicators. We’ve previously written about how Dropsuite is approaching an inflection point and the company continues to focus on expanding its market presence and enhancing its product offerings. As a result, the Q2 numbers have yielded impressive outcomes, particularly in Annual Recurring Revenue (ARR), the number of paid users and churn rate.

One of the standout metrics from Dropsuite’s Q2 FY24 report is the remarkable growth in ARR.

The company reported an ARR of AUD 39.92 million, representing a 31% year-over-year increase. This substantial growth confirms Dropsuite’s ability to attract and retain customers through its comprehensive suite of cloud-based backup and archiving solutions. The ARR growth is a testament to the company’s successful execution of its strategic initiatives and further solidifies our thesis that the company can scale its business and expand its customer base via its partner ecosystem.

During Q2 FY24 the company brought its churn rate back down to below 3%, consistent with its historical performance.

This follows on from an increase in the March quarter to just under 5%. Dropsuite previously reported that the increase was primarily due to increased competition on pricing especially in the Europe, Middle East, and Africa (EMEA) region. It was noted last quarter that the company had been introducing the necessary measures to address and mitigate churn going forward which appear at this stage to be working.

Dropsuite has seen a significant increase in its paid user base.

The number of paid users grew by a record 112k during the quarter to reach a total count of 1.35 million. This growth is indicative of the strong demand for Dropsuite’s solutions and the company’s ability to penetrate new markets. The expanding user base is a critical driver of Dropsuite’s recurring revenue model, providing a stable and predictable income stream.

Dropsuite CEO Charif Elansari commented:

“Continued growth in the global data protection market, combined with our leading position and customer-centric approach, drove record seat additions in Q2 2024. This momentum, along with continued expansion of our MSP partnerships, fuels our optimism for future growth. Furthermore, churn returned to its historical level of <3% after a slight uptick in the March quarter. This reflects our strong commitment to client service and support across the organisation. With a robust balance sheet, favourable market tailwinds including data security and regulation, and a highly scalable distribution channel, we are well positioned to deliver growing and sustainable returns to our shareholders.”

Dropsuite’s Q2 FY24 results reflect the company’s impressive business model and its ability to execute its growth strategies effectively. The significant increases in ARR and paid users demonstrate Dropsuite’s strong market position and its potential for continued success.

The TAMIM Takeaway

The market continues to present opportunities for the strategic investor ahead of a flurry of earnings reports expected over the next month.

Despite recent volatility, we believe there are still a number of opportunities in the small-cap space that remain ripe with potential, as evidenced by the three companies highlighted above. Strong results, capital returns, upgraded guidance, and ongoing merger and acquisition activity underscore the abundant opportunities available.

The proactive management and growth potential within the current market reinforced our confidence in the long-term value that can be delivered to ASX investors.

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Disclaimer: Dropsuite Limited (ASX: DSE), Bravura Solutions (ASX: BVS) and Viva Leisure Limited (ASX: VVA) are held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.