Recently, Rob Miller from NAOS, a leading Listed Investment Company (LIC) provider in Sydney, sat down with me on Selfwealth Live to talk about two interesting small cap opportunities available on the ASX.

Below, I'll summarise what the companies do and why they might deserve a spot on your watchlist. For a much deeper understanding of the businesses, please watch Live session below. Keep in mind, NAOS owned positions in each of these companies during our recording.

https://www.youtube.com/watch?v=1HsZbXA6dr4

Gentrack Group Ltd (ASX: GTK)

Gentrack Group provides billing and other types of software for essential service organisations such as energy businesses, water utilities and airports. It has offices in New Zealand, Australia, the UK, Singapore, USA and Europe. Gentrack provides services for over 200 utility and airport sites in more than 30 countries. One of its customers is Sydney Airport.

Gentrack has met with the few hiccups over the years but the company's new management team and board has reacted, with Gary Miles being appointed CEO in October 2021.

While Gentrack is only $NZ160 million in size (market capitalisation) the company has meaningful amounts of sticky revenue given its software is used by vitally important sectors of the economy.

Some of the key risks to growth include uncertainty in the UK energy market and cash flow. It should also be noted that NAOS is a substantial shareholder, but recently lightened their stake in the company.

Maxiparts Ltd (ASX: MXI)

Maxiparts is another small-cap company that has undertaken some meaningful changes to clean up and improve its financials. Maxiparts is a name you may know for creating trailers and accessories that attach to large trucks (the kind of tipper or transport trucks you see on the freeway). However, in July 2021 it was announced that Maxiparts would sell its trailer business, Maxitrans.

This is important to know because a lot of investors looking at Maxiparts' historical financials might say 'the financials don't look great', on account of pretty low margins and a chuck of debt. The following chart from the Selfwealth page for Maxiparts shows the debt levels over time.

The way it shakes out is that the now $100 million company sold its 'uglier' business for $48.3 million and, as you can see above, simplified its balance sheet. As of 2022, the new company is basically just the "MaxiPARTS" business -- a business specialising in selling and supplying truck parts and accessories.

Therefore, while it will be a smaller company (revenue/sales wise), the key thing to watch going forward is the profitability -- such as gross profit margins and cash flow.

"As outlined in the investor pack when we released the full year results, we do expect to see a reduction in low margin sales to the formerly owned trailer solutions business in H2 FY23 as both businesses look to reduce reliance on each other. This reduction in sales would also drive a reduction in cost and inventory holdings." - Maxiparts AGM 2022

While it is early days, and the company expects modest growth going forward, I think greener days may lay ahead for Maxiparts.

If you're interested in researching the business, you might also like to take a look at Supply Networks (ASX: SNL), which supplies parts for buses, and Bapcor Ltd (ASX: BAP), which supplies parts for most types of vehicles through Burson and Autobarn.

Summary

Maxiparts and Gentrack are two very interesting little businesses. Neither are completely 'out of the woods', in terms of their transformations, so to speak, but I've found that oftentimes investors who put in the work to truly understand a business going through change can identify opportunities others will miss. It's time to go to work!

Owen Raszkiewicz is the Founder of Rask, and host of Selfwealth Live. You can follow him on Twitter.