Respected fund manager Wilson Asset Management (WAM) has recently identified two ASX shares that it owns in its portfolio.
WAM operates several listed investment companies (LICs). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Leaders Ltd (ASX: WLE).
There’s also one called WAM Active Limited (ASX: WAA) which looks at businesses it thinks are the most undervalued.
WAM says WAM Active invests in market mispricing opportunities in the Australian market.
The WAM Active portfolio has delivered gross returns (that’s before fees, expenses and taxes) of 11.7% per annum since inception in January 2008, which is superior to the Bloomberg AusBond Bank Bill Index return per annum of 3.1%.
These are the two ASX shares that WAM outlined in its most recent monthly update:
Steadfast Group Ltd (ASX: SDF)
Steadfast has a market capitalisation of $3.4 billion according to the ASX.
WAM describes Steadfast as the largest general insurance broking company in Australasia.
The fund manager said that in October, the company increased its FY21 guidance, changing its underlying earnings before income, tax and amortisation from between $235 million to $245 million to a range of between $245 million to $255 million.
The ASX share also upgraded its underlying net profit after tax guidance to ;between $120 million and $127 million, with diluted earnings per share (EPS) growth of between 10% to 15%.
WAM said that Steadfast continues to benefit from the insurance premium market and is well placed to make acquisitions given its strong balance sheet.
At the current Steadfast share price, it has a trailing grossed-up dividend yield of 3.5%. Looking at Commsec, it’s valued at 21x FY23’s estimated earnings.
Nine Entertainment Co Holdings Ltd (ASX: NEC)
Nine has a market capitalisation of $4 billion according to the ASX.
WAM describes Nine as the largest locally owned media company. It owns and operates television, video on demand, print, digital and radio assets.
Some of its highest-profile assets include streaming service Stan, as well as the news outlets of the Australian Financial Review, the Sydney Morning Herald, the Brisbane Times and The Age. It owns the radio station 2GB. It also owns a significant stake of Domain Holdings Australia Ltd (ASX: DHG).
The investment team at Wilson Asset Management think that the ASX share will benefit from rising advertising expenditure in the lead up to the Christmas period, with consumer confidence improving after the announcement that lockdown restrictions would be relaxed in Victoria.
By FY24, Nine is trying to achieve a $230 million cost reduction (compared to FY19). The majority of this will come from programming, production and distribution cost reductions.
Nine is aiming for 60% of its earnings before interest, tax, depreciation and amortisation (EBITDA) to come from digital businesses, Nine wants more than 35% of its group revenue to come from subscription and around 30% of its revenue to come from video on demand.
According to Commsec numbers, the Nine Entertainment share price is valued at 16x FY23’s estimated earnings. It also offers a trailing grossed-up dividend yield of 4.25%.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Steadfast Group 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.