What Makes a Small-Cap Company Scalable

What Makes a Small-Cap Company Scalable

Many of today’s ASX blue chips, companies like CSL, REA Group and WiseTech, once traded as small caps. For investors, recognising scalable business models early can be the key to long-term success.

In this Buy Hold Sell episode, Emanuel Datt, Chief Investment Officer at Datt Capital, joined Livewire’s Chris Conway to discuss what makes a small-cap company truly scalable and which emerging names could become tomorrow’s industry leaders.

The Traits of a Scalable Small Cap

When asked about the key traits of a scalable business, Emanuel explained:

“When you say scalable, to me that means that the business has the ability to maintain a certain level of fixed costs whilst growing the top line. Effectively, the way these come about is typically a company would have a certain edge, perhaps it might be in distribution… or it could be some technological advantage.”

Emanuel’s view highlights Datt Capital’s focus on identifying small companies with defensible advantages and efficient operating models where growth can compound without proportionate cost increases.

Funding Growth and Capital Discipline

Emanuel agreed that raising capital is not necessarily negative when used effectively:

“As long as they raise capital and are able to reinvest that capital at significantly higher rates, then we have no problem with it. However, capital discipline is a mark of quality and execution is one part of that.”

He added that, while dilution is generally undesirable, disciplined use of capital can create long-term shareholder value. This characteristic mirrors our investment philosophy here at Datt Capital, in which we focus on companies that allocate capital efficiently and maintain financial flexibility.

Applying These Principles to the Market

Before looking at individual companies, Emanuel applied these principles to several ASX-listed names, assessing how their growth models and capital discipline stack up in practice. These are the same qualities central to the small companies strategies managed at Datt Capital.

Note: This episode of Buy Hold Sell was filmed in June 2025. The company recommendations below reflect market conditions and valuations at that time. You can watch the full episode below or continue reading for the discussion summary.

Premier Investments (ASX: PMV) – Hold

Emanuel rated Premier Investments a Hold, acknowledging both its strength and limitations:

“Premier is one of those great retail businesses that has a truly global and addressable market. I think the recent deal with Myer was a really significant game changer for the portfolio… Smaller brands like Smiggle or Peter Alexander could be spun off in time, allowing management to pursue international growth more aggressively.”

He concluded that valuation remains a consideration, reinforcing Datt Capital’s disciplined approach to entry points and preference for a clear margin of safety before upgrading conviction.

Bravura Solutions (ASX: BVS) – Buy

Emanuel was more constructive on Bravura Solutions, calling it a Buy:

“They’ve become a lot more disciplined in terms of cutting costs out and being more disciplined with their capital, which we like. But it would be remiss not to broach the topic that the largest shareholders, basically the family office of one of the world’s great software consolidators, Constellation Software, and one of their associates is now interim CEO.”

He noted that this strategic alignment adds confidence to Bravura’s turnaround potential. Trading at what Emanuel described as a “fairly modest multiple compared to overseas comparables,” the company fits Datt Capital’s focus on undervalued technology firms with improving fundamentals.

Breville Group (ASX: BRG) – Hold

Emanuel maintained a Hold rating on Breville Group, noting both its history of success and competitive pressures:

“Breville would be a hold for me. Great Australian success story over many years, but when it comes down to it, they sell small kitchen appliances… Their moat has really been around the innovation and making professional-style coffee at home at an affordable price. That level of innovation can go so far, and there’s heavy competition in the space as well.”

Emanuel’s perspective reflects a pragmatic stance, acknowledging quality businesses while remaining valuation-aware.

Emanuel’s Pick: Siteminder (ASX: SDR)

For his top pick, Emanuel named Siteminder:

“Siteminder provides electronic distribution and revenue management tools to hotel and accommodation providers… What’s really attractive about Siteminder is the diversity of its client list; it’s really a very long tail of clients effectively. It’s been able to grow its top-line revenues by double-digit percentages each year, combined with the fact that it’s been able to control costs as well.”

He added that Siteminder is “probably at the inflexion point of breaking into that cash-flow-positive stage,” viewing it as an appealing infrastructure-like business model with global scalability.

The Takeaway: Patience and Precision in Small-Cap Investing

For investors seeking long-term growth with disciplined risk management, small caps remain an essential hunting ground when approached with the same patience and rigour Datt Capital applies in its process.

Emanuel’s insights underscore the importance of scalability, capital discipline, and operational execution when assessing potential future ASX leaders. These are the same characteristics that guide the Datt Small Companies Fund, which targets high-conviction opportunities in undervalued companies across Australia.

If you want to learn how Datt Capital identifies scalable businesses and potential future leaders across the Australian market, visit our Funds page or contact our Head of Distribution, Daniel Liptak, on 0419 004 524 or via email at daniel@datt.com.au.