Morgans expects big returns from these small cap ASX shares

If you have a higher than average risk tolerance, then having a little exposure to the small side of the market could be worth considering.

That’s because if you can catch a small cap ASX share on its way to becoming a mid or large cap, the returns could be mouth-watering for your portfolio.

With that in mind, let’s take a look at a couple of small cap ASX shares that Morgans has on its best ideas list this month. They are as follows:

PeopleIn Ltd (ASX: PPE)

Morgans thinks that this workforce management company could be a small cap ASX share to buy right now.

The broker currently has an add rating and $4.90 price target on its shares. This implies potential upside of almost 70% for investors.

Its analysts believe its shares are cheap at the current level. Particularly given the company’s strong earnings growth potential and defensive qualities. It commented:

PPE is trading back at $3.00/sh and a sub-10x PER. We continue to think it looks cheap for a company that has grown earnings at c.20% year in year out – company guidance has EBITDA growing 35% in FY23. We are buoyed by management’s focus on making the business more defensive, and capable of navigating any potential downturn. The opportunity under the Pacific Australia Labour Mobility (PALM) scheme is massive and following the Federal Government’s Job Summit, there has rarely been more focus on increasing migration. With Covid all but done PPE’s healthcare division could bounce back and drive earnings growth over the medium term. With $30m of spare debt capacity, management are well placed to deliver growth into FY24, if they can land a deal in the next 18 months.

Tourism Holdings Ltd (ASX: THL)

Tourism Holdings is a global tourism operator and the largest commercial recreational vehicle (RV) rental operator in the world. It merged with Apollo Tourism & Leisure late last year, creating a multi-national, vertically integrated RV manufacturing, rental, and retail business spanning motorhomes, campervans, and caravans.

Morgans has the company’s shares on its best ideas list with an add rating and $5.15 price target. Based on the current Tourism Holdings share price of $3.88, this implies potential upside of 33% for investors.

The broker believes Tourism Holdings is well-placed for growth in the coming years thanks to the travel market recovery from COVID. All things considered, the broker feels its shares are too cheap at current levels. It commented:

THL recently reported a very strong 1H23 result which materially beat expectations. Pleasingly and reflecting the strong operating conditions to which it is leveraged to, it also upgraded its FY23 NPAT guidance. With all markets now reopened, THL has strong leverage to a tourism recovery over the next few years. In addition, it has further leverage from extracting the material synergies with ATL. We continue to believe that the merger synergies are conservative and will be upgraded over time. The prospects for the merged group are so strong that THL will now resume dividends with the FY23 result (6-12 months earlier than expected). With the stock trading on an FY25F high single digit PE, we think this is too cheap for the largest commercial, global RV rental business in the world. Importantly, THL is run by an impressive management team which have a strong track record.