Some ASX shares are trading at crazy cheap prices in my opinion.
Some shares look cheap but perhaps they are rightly cheap because of the COVID-19 conditions they face. One example is Qantas Airways Limited (ASX: QAN). Who knows when international flights will resume?
However, there are other ASX shares that seem like cheap buying opportunities to me:
Citadel Group Ltd (ASX: CGL)
Citadel is an ASX tech share that provides secure software to manage information. Some of its main clients operate in the sectors of defence, education and healthcare.
Indeed, it’s the healthcare that the ASX share is targeting with its recent acquisition of a UK healthcare software business called Wellbeing. The UK company provides software to help manage patient workflow.
Recurring revenue makes up around 70% of Wellbeing’s total revenue. The acquisition increases Citadel’s overall recurring revenue from 41% to 48% of total revenue.
The acquisition will increase the ‘health’ gross profit segment to around half of Citadel’s overall gross profit. Citadel’s earnings before interest, tax, depreciation and amortisation (EBITDA) margin will rise from 22% to 26%.
Citadel’s revenue becomes more defensive and its profit margin will be higher. There’s a lot to like about this acquisition. The ASX share could steadily become a larger global software player.
It’s currently trading at just 12x FY22’s estimated earnings. I think that looks very cheap.
NAOS Small Cap Opportunities Company Ltd (ASX: NSC)
NAOS Small Cap Opportunities is a listed investment company (LIC) which targets ASX shares with market capitalisations between $100 million to $1 billion. These businesses are small enough that they have plenty of growth potential, but large enough that they aren’t too risky.
Some of the current businesses that the LIC is invested in are MNF Group Ltd (ASX: MNF), BSA Limited (ASX: BSA), Over The Wire Holdings Ltd (ASX: OTW) and Eureka Group Holdings Ltd (ASX: EGH). There is promising growth potential with each of these ASX shares.
At 31 July 2020 it had pre-tax net tangible assets (NTA) per share of $0.69. The current NAOS Small Cap Opportunities share price is trading at a 25% discount to the NTA. That’s a big discount for a LIC.
In the meantime, investors who buy shares will seemingly get an annual grossed-up dividend yield of 11%.
Vitalharvest Freehold Trust (ASX: VTH)
Vitalharvest is a real estate investment trust (REIT) that owns farmland. It actually owns some of the largest aggregations of berry and citrus farms in Australia. Those farms are leased to Australia’s biggest agricultural business, Costa Group Holdings Ltd (ASX: CGC). Vitalharvest has a profit share agreement with Costa for the farms that Costa rents.
The ASX share currently offers investors a cash yield of 6%. That’s not bad going considering Costa has had a rough time recently with the drought, crumbly berries and fruit flies at the citrus farms. If profitability were to return to 2019 levels then Vitalharvest may be able to pay a 7% yield.
Vitalharvest’s share price could rise over the coming months as investors learn more about the new manager’s plan to grow the business. It’s going to take a more active approach in finding acquisitions in Australia and New Zealand.
The REIT won’t just be targeting farms, it’s also going to look at other food property assets. It will look at buildings related to food processing, food storage and food logistics.
At 31 December 2019, Vitalharvest had a net asset value (NAV) per unit of $0.95. The current Vitalharvest share price is a 16% discount to that NAV.
I think a return to normal profitability for Costa, higher distributions, and acquisitions led by the new manager could see the share price rise closer to the NAV.
I think each of these ASX shares look very cheap compared to either their future earnings or recent asset value. At the current prices I think Citadel could produce the strongest returns over the next few years due to its growth, higher margins and low earnings multiple. But both the Naos LIC and Vitalharvest are both trading at big, attractive discounts to their underlying value.
These 3 stocks could be the next big movers in 2020
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Tristan Harrison owns shares of NAO SMLCAP FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Over The Wire Holdings Ltd. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. The Motley Fool Australia has recommended Citadel Group Ltd and Over The Wire Holdings Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.