Stocks to Fire and Hire: Emanuel Datt on Small-Caps

A Case Study of Bapcor vs Pexa

Emanuel Datt, Founder and Portfolio Manager of the Datt Small Companies Fund, was recently featured in Livewire Markets’ “You’re fired! 6 ASX stocks to fire, 6 to hire – small-cap edition.”

In this feature, Emanuel shared his perspective on two companies that illustrate the sharp divide in today’s small-cap market. He outlines why Bapcor (ASX: BAP), once a high-quality auto parts retailer, has slipped into value-trap territory, and why Pexa (ASX: PXA) stands out as a rare combination of monopoly economics and new growth opportunities. This article contrasts two small-cap stocks to illustrate how Datt Capital assesses deterioration in quality versus emerging long-term opportunity.

Stock to Fire – Bapcor (ASX: BAP)

Bapcor (BAP) has transitioned from a high-quality automotive aftermarket retailer to a potential value trap.

The core investment thesis: defensive earnings from trade parts, stable growth in retail and optionality in Asia, has eroded under poor execution and excessive management churn.

The July downgrade, cutting NPAT guidance to $31–34m, has crystallised long-held concerns about cost control and strategic clarity.

On valuation, even at around $3.50 per share, BAP trades on an EV/EBIT multiple in the mid-teens despite a significant negative total shareholder return over five years in relative to peers with stronger earnings stability.

We believe that intrinsic value lies closer to $2.50 per share, implying the stock remains overvalued at current prices with limited positive catalysts on the horizon.

Stock to Hire – Pexa (ASX: PXA)

Pexa offers a rare combination of monopoly economics, new leadership discipline, and emerging growth optionality. The appointment of a refreshed management team has sharpened strategic focus, with clearer capital allocation priorities and increasing traction in its offshore expansion push.

The core Australian exchange remains a cash-generative near monopoly, with more than 90% market share and resilient margins. The company trades at an attractive multiple despite its infrastructure-like revenue profile.

Pexa is also well positioned to integrate AI across workflow automation, fraud detection, and data services. These developments should enhance scalability and unlock new revenue streams in property analytics.

We recently increased our position due to the combination of stronger management discipline, prudent capital stewardship, and imminent UK expansion optionality as catalysts for a re-rate over the medium term.

Read the full article from Livewire here.

About the Datt Small Companies Fund

The Datt Small Companies Fund invests in a focused portfolio of Australian small-cap companies with resilient balance sheets and long-term growth potential. Small-cap stocks often present overlooked opportunities, and through disciplined stock selection and independent research, the Fund seeks to capture these opportunities while managing risk. The objective is to deliver attractive risk-adjusted returns across different market conditions for wholesale investors seeking high-conviction exposure to small-cap equities.

Our research-driven process identifies undervalued companies in Australia with durable long-term growth drivers. We invest alongside our clients, ensuring full alignment of interests.

To learn more or to invest in the Datt Capital Small Companies Fund, visit our Fund page or contact our Head of Distribution, Daniel Liptak, via call at 0419 004 524 or email at daniel@datt.com.au.

Frequently Asked Questions

What does this case study illustrate about small-cap investing?

This case study contrasts a deteriorating business and a structurally advantaged company to show how disciplined research helps distinguish value traps from long-term opportunities in Australian small caps.

Why is Bapcor considered a potential value trap?

Bapcor has experienced earnings downgrades, management instability, and weaker execution, while still trading at valuation levels that do not fully reflect these risks, limiting upside potential.

Why does Pexa stand out among Australian small caps?

Pexa operates a near-monopoly core business with strong cash generation, supported by improving management discipline and optional growth through offshore expansion and technology integration.

How does Datt Capital assess small-cap investment opportunities?

The assessment focuses on business quality, earnings durability, management execution, valuation discipline, and identifiable catalysts that support long-term risk-adjusted returns.

What role does valuation play in stock selection?

Valuation is assessed relative to earnings stability, balance sheet strength, and future growth optionality, rather than relying on headline multiples alone.

Who is the Datt Small Companies Fund designed for?

The Fund is designed for wholesale investors seeking high-conviction exposure to undervalued Australian small-cap companies through an active, research-driven investment approach.