Macquarie's best ASX small-and-mid cap picks for March

Macquarie highlighted its best small-and-mid cap stock picks, derived from its screen on two core investment styles: Quality and Fundamental Value.

The Quality screen identifies companies with strong profitability, competitive advantages, and stable earnings growth, while the Fundamental Value screen highlights stocks that trade below their intrinsic value but demonstrate strong financial health and growth potential. Both strategies have historically delivered outperformance in the Australian market.

Below are their top stock picks, their ratings, target prices, and investment cases.

Top picks summary

Source: Macquarie Research, March 2025

Macquarie's Quality Compounder screen featured GQG Partners, Lovisa, Pinnacle, Temple & Webster, and Universal Store.

Meanwhile, the Systematic Fundamentals screen included IPH and Qualitas.

Stocks that appeared on both screens were A2 Milk, Breville, JB Hi-Fi, Nick Scali, and Ventia Services.

Stocks with the most upside

The stocks with the most share price upside were skewed towards a handful of healthcare picks, industrials and asset managers.

Integral Diagnostics is an Australian and New Zealand diagnostic imaging services company that's struggled to deliver much upside to investors, up just 7% in the past twelve months. The stock tumbled 12% after its 1H25 result on 26 February, as both operating net profit and revenue fell short of expectations. Analysts were broadly negative, citing weak margins due to staff shortages and wage inflation, with a key concern being that organic revenue growth in Australia continued to lag the market.

Integral Diagnostics 12-month price chart (Source: Market Index)

The sharp selloff has sparked takeover speculation, with The Australian reporting that private equity firms are keeping an eye on healthcare companies.

Macquarie’s investment thesis centers on:

• Earnings drivers: Revenue tailwinds from MRI deregulation (17 MRI machines fully licensed from FY26) and the $264m National Lung Cancer Screening Program, starting July 2025.

• Growth outlook: Revenue growth of ~7.5% in 2H25, with upside from increased bulk billing eligibility. EBITDA margins expected to expand from 20.6% in 2H25, as cost synergies from the CAJ merger (>$10m pre-tax annually) materialise.

IPH, an intellectual property services firm specialising in patents, trademarks, and legal advisory, has been in a sustained downtrend, down 27% in the past year, trading at levels not seen since June 2018. This underperformance has been largely driven by weaker patent filings in key markets, including Asia and Canada.

Despite this, IPH’s 1H25 result beat Macquarie and consensus estimates by ~5%, with analysts expecting further upside from:

• Earnings recovery: Strong earnings beat, Canadian acquisition synergies, and 10% growth in Asian IP filings (1H25).

• Growth outlook: Forecast earnings supported by the resolution of Canada’s CIPO backlog and C$4.5m in synergies from Bereskin & Parr integration. While foreign exchange headwinds impacted 1H25, Macquarie estimates that every 1 cent movement in AUD/USD equates to ~$2.8m in revenue upside.

Monash IVF shares have fallen 18% over the past year, with most of the weakness stemming from a $56 million class action settlement in August 2024, triggering a ~20% selloff between 21 August and 5 September.

Despite the sharp drop, Macquarie remains bullish, citing market share gains and margin expansion as key tailwinds:

• Market share gains: Market share gains accelerating (+60bps in 1H25), driven by expansion in WA and recruitment of new specialists (+7 net in FY25 YTD).

• Growth Outlook: Domestic revenue growth forecast at ~7% in 2H25, with EBITDA margin expansion of ~140bps from FY25e-27e. Further upside from increased day hospital utilisation and IVF volume growth.

Pinnacle was one of the best-performing ASX 200 stocks in 2024, surging 126% on strong fund inflows and bullish equity markets. However, the recent market pullback has seen the stock dip 15% year-to-date.

Pinnacle 12-month price chart (Source: Market Index)

Despite this short-term weakness, Macquarie remains optimistic, expecting strong medium-term growth:

• Earnings beat: Strong 1H25 result with NPAT growth of 20.6%, driven by higher performance fees and funds under management (FUM) growth.

• Growth outlook: FUM up 27.9% CAGR (2024-2027), with international expansion boosting revenue diversification. Performance fee contribution increasing, supporting margin expansion.

• Strong earnings growth: Macquarie forecasts ~28% EPS CAGR over FY24-27, supported by net flows across fixed income, credit and private markets.