Company Interview / TWC Invest's small cap big idea

John Birkhold from TWC Invest highlights the appeal of small cap companies, especially those in the early stages of profitability, bringing innovation and substantial addressable markets. Birkhold singles out Cogstate (ASX:CGS) as a standout example, combining software and service offerings in clinical trials for central nervous system diseases, particularly Alzheimer's and dementia. He points to Cogstate's significant presence in this market, robust moat due to years of clinical research and digital cognitive assessments, and large growth opportunity as key reasons for its selection.

Birkhold notes Cogstate's business is evolving through expanded indications into psychiatric disorders and partnerships with major players like Medidata, the leading electronic data capture provider acquired by a French group in 2019 for $5.8 billion. The integration of artificial intelligence is set to automate and enhance the monitoring of clinical data, reducing manual review, improving data quality, and strengthening Cogstate's competitive advantage. Cogstate’s suite of technology and services aims to provide end-to-end support in clinical trial design, site training, and rigorous data analysis which he sees as crucial for its scalability.

Birkhold describes Cogstate's financial momentum as driven by a recovery from Covid-19 disruptions, a focused management team, and increasing R&D expenditure in central nervous system disorders. And he highlights the business's cash generation, ability to invest or issue dividends, and valuation at around 16 times EBITDA, cautioning that investors should consider gradual exposure due to some revenue concentration.

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