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). Some focus on larger companies like WAM Leaders Ltd (ASX: WLE) and WAM Research Limited (ASX: WAX).
There’s also one called WAM Capital Limited (ASX: WAM) which targets “the most compelling undervalued growth opportunities in the Australian market.”
The WAM Capital portfolio has delivered an investment return of 16.3% per annum since inception in August 1999, before fees, expenses and taxes. This gross return outperformed the S&P/ASX All Ordinaries Accumulation Index return of 8.3% per annum over the same timeframe.
These are the two ASX shares that WAM Capital outlined in its most recent monthly update:
Infomedia Limited (ASX: IFM)
According to the ASX, Infomedia has a market capitalisation of $722 million.
WAM describes Infomedia as a leading provider of parts, services and data insights to the global automotive industry.
In November, the ASX share secured a strategic contract with Ford Europe valued at $14 million over five years, to provide the next generation of Ford’s electronic parts catalogue in the European region. The fund manager explained the contract allows Infomedia to continue to focus on the parts and services element of the value chain, expanding usage of its integrated parts selling platform and taking advantage of the trend towards innovative technology solutions in the automotive industry.
Infomedia management has provided an aspirational target to double revenue over the next five years, and the fund manager is positive about Infomedia’s ability to increase its current 0.5% market share in the global automotive dealership software market going forward.
Using the current Infomedia share price and Commsec earnings projections, it’s priced at 25x FY23’s estimated earnings.
Graincorp Ltd (ASX: GNC)
According to the ASX, Graincorp has a market capitalisation of $1 billion.
WAM describes Graincorp as a business that handles, receives and stores agricultural commodities including grain and assists with the transporting, testing, storing and marketing of agricultural products.
The fund manager said that with a September financial year end, the ASX share issued its FY20 results in November that highlighted a significant lift in financial performance despite the impact of the drought, with underlying earnings before interest, tax, depreciation and amortisation (EBITDA) from continued operations of $108 million and a fully franked full year dividend of 7 cents per share.
Graincorp also reported that underlying net profit after tax was a loss of $16 million whilst statutory net profit after tax was $343 million.
At the time, Graincorp chief financial officer Ian Morrison said: “Although ECA grain production was again adversely impacted by drought, the company benefited from the first year of the CPC, receiving a total gross payment of $58 million due to the reduced size of the harvest.
“Throughout the year, the business continued to import grain from other states to manage east coast grain deficits, although these trans-shipments slowed in the second half as expectations for the 2020/21 crop improved. It is pleasing to see improvements in performance right across the business and the benefits being delivered from our capital investments and operating initiatives.”
WAM said that the FY21 outlook is strong with a record east coast crop tracking ahead of expectations.
The WAM thesis about the investment is that Graincorp is leveraged to an increase in crop volumes and the fundie believes that the efficiency gains and cost savings implemented by management over the past years will materialise in financial performance.
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Infomedia. The Motley Fool Australia has recommended Infomedia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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