Active investing takes Aussie small caps team on the road in 2025

It’s been a whirlwind year for Pendal’s small caps team, crisscrossing four states and four countries to uncover the next big opportunities in Australian-listed small-cap equities. Portfolio manager LEWIS EDGLEY reflects on 2025.

• Small caps team’s travels to uncover investment opportunities
• On-the-ground research improves company-level insight
• Find out about the Pendal Smaller Companies Fund

From gold mines in Western Australia to olive groves in California, the team’s boots-on-the-ground approach underpins its approach to fundamental research.

This year the small caps team’s domestic travels took them through Western Australia, Queensland, Victoria and South Australia, while their international journey spanned the UK, Italy, New Zealand and the US.  

During a seven-day trip to the US in November, the team visited five cities and participated in over 30 meetings.

“We’re a team of five – I believe this makes us among the largest dedicated small cap teams in the Aussie equities market. There’s almost not a week that goes by that someone in the team isn’t on the road,” explains Edgley, who co-manages Pendal’s Smaller Companies Fund and Microcap Opportunities Fund.

In Western Australia, fellow Portfolio Manager, Patrick Teodorowski, recently visited Meeka Metals’ (MEK) Murchison gold project. The visit allowed the team to gain greater confidence in Meeka’s transition from mine developer to gold producer.

The team paid a visit to Codan, an electronics solutions business that develops technologies including metal detection and communications, in Adelaide.

They gained more insights into the intellectual property (IP), range and functionality of Codan’s products. 

“There’s a huge amount of IP in Codan’s gold detectors ensuring they not only lead the market in terms of functionality but also preventing others counterfeiting them and reproducing them more cheaply,” notes Edgley.

“We’re also right on the cusp of a new product refresh cycle. The latest range of gold detectors go deeper than the last generation of detectors – this allows prospectors to revisit ground that has previously been explored.

“The new machines bring more efficiency; they have enhanced features that provide operators with greater detail about targets ahead of digging, as well as GPS integration detailing exactly where they have explored and located any finds.

“This is an innovation led company – they’re always looking to add capabilities and have been very successful in keeping ahead of the competition.”

In the UK, a visit to furniture retailer Nick Scali was on the agenda following its offshore expansion earlier in the year.

With the small cap IPO pipeline expanding, GemLife in Queensland – a founder led business which specialises in luxury lifestyle communities for the over 50s – was on the team’s radar.

Electrification has also been a strong theme in 2025, prompting numerous visits to data centres as well as adjacent component manufacturers in Adelaide and Perth.

“There is a large and rapidly growing number of data centres getting fitted out around the country that require a considerable amount of energy to power them. This is coupled with a transformation of the national energy grid as the country attempts to move away from a centralised power generation architecture to being a much more diversified grid,” says Edgley.  

“We like to look at the second derivative of this to find the ‘picks and shovels’ opportunities that relate to the data centre and electrification booms that are playing out. This is the great thing about investing in small caps – there are often multiple ways that we can make money from a particular theme.

“There are a number of small cap services businesses that work into these areas that we’ve been able to put capital into and today have done quite well.”

Edgley pointed to Southern Cross Electrical (SXE), GenusPlus Group (GNP) and Duratec (DUR) as examples of this.

In the US, the team checked out everything from olive oil at Cobram Estate’s (CBO) in California and Breville’s (BRG) coffee machines at Williams-Sonoma in New York to 4X4 offroad parts specialist 4WP (part owned by ARB) in Texas.

“Cobram Estate has 50 per cent market share of olive oil in Australia,” says Edgley.

“This is a new position for us that we’re continuing to build our knowledge base on. One of the days I spent in the US was visiting Cobram’s production facility and olive plantings at Woodlands, California. This is a crucial step in our investment process and allowed us to better understand and validate what Cobram is doing in the US.

“At the moment investors largely view Cobram as an Aussie agricultural company, but we think that there’s a scenario in two- or three-years’ time where it’s considered to be a global consumer brands business that has a very long growth runway. This is all dependent on how successful they are in the US.

“We think that journey is already underway.”

Currently, Cobram is producing about half a million litres of olive oil in the US, but the US consumes about 420 million litres per annum – 95 per cent of which is imported. The preference for authentic, locally sourced olive oil among American consumers has driven the surge in demand Cobram has experienced over the past few years.

“And over the next five years, the maturity of Cobram’s plantations will see them go from supplying about half a million litres into this market, to almost 10 million litres.

“This is a massive uplift in in production, and potential value, that they’re able to create. If their experience to date is anything to go by there will be a huge amount of demand in the US for product of this quality.”

Edgley says there are always ways to make money in small caps regardless of the macroeconomic factors and what the benchmark indices are doing.

“In any given year there’ll be some up 20+ per cent stocks and there’ll be others down 20+ per cent. So our opportunity is to just sift through that,” explains Edgley.

“We are absolutely aligned with our investors, everyone in our team has got money in the fund.

“Our pursuit of finding ideas, gaining unique insights and then exploiting these moneymaking opportunities is just relentless.”