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 12% 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:
Graincorp Ltd (ASX: GNC)
According to the ASX, Graincorp has a market capitalisation of $980 million.
The fund manager 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.
Graincorp recently released its FY20 results for the year to September 2020 that showed 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 dividend of 7 cents per share.
The company also reported that its underlying net profit after tax (NPAT) for continuing operations was a $16 million loss, although this was improved from the $158 million loss in FY19. The statutory net profit was $343 million.
WAM Active said that the FY21 outlook for the company is strong with a record east coast crop tracking ahead of expectations. Graincorp is leveraged to an increase in crop volumes and the fund manager believes that the efficiency gains and cost savings implemented by management over the past years will materialise in financial performance.
Management said that the 2020/2021 winter crop will be similar size to the FY17 harvest (subject to ongoing weather conditions and other variables).
At the current Graincorp share price, it's valued at 15x FY21's estimated earnings according to projections on Commsec.
Adore Beauty Group Ltd (ASX: ABY)
According to the ASX, Adore Beauty has a market capitalisation of $480 million.
Adore Beauty recently listed on the ASX at the end of October 2020. It's Australia's only exclusively-online beauty retailer. WAM said the company was launched in 2000 in the founder's backyard.
The company has grown to now stock more than 230 leading beauty brands, offering customers access to more than 11,000 products. The company had more than 18.5 million website users across its Australian and New Zealand websites in FY20. At 30 June 2020 it had serviced more than 590,000 active customers.
WAM pointed out that in November, promotional sales during the Black Friday and cyber weekend proved stronger than Adore Beauty's initial forecasts. That's why Adore Beauty increased its forecast revenue guidance for the FY21 first half to approximately $95.2 million, which was more than the prospectus forecast by 7%.
At the time of the update, Adore Beauty CEO Tennealle O'Shannessy said: "We are pleased to report strong sales ahead of our prospectus forecasts. The business has continued to scale, deliver content and meet the needs of our customers at a time when they need it most."
The expected uplift in revenue is also anticipated by the company to have a positive impact on the EBITDA forecast for the first half of the 2021 financial year.
