2 little-known small cap ASX shares rated as buys by fundie

The 2 ASX shares in this article have been identified by fund manager Naos Asset Management as good buys like BSA Limited (ASX:BSA).

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There are some ASX small cap shares worth buying and owning according to fund manager Naos Asset Management.

What is Naos Asset Management's investment approach?

Naos is led by chief investment officer (CIO) Sebastian Evans.聽NAOS Small Cap Opportunities Company Ltd聽(ASX: NSC) is one of the listed investment companies (LIC) operated by Naos.

That particular LIC looks at businesses with market capitalisations between $100 million and $1 billion.

The fund manager has a number of聽investment focuses. It looks for businesses that are good value with long term growth potential. With its portfolio, Naos believes it's better to have a quality portfolio rather than numerous holdings. That's why it only holds around 10 positions in each fund, with each ASX share representing a high-conviction position.

Naos invests in the small cap ASX shares for the long-term. It considers the performance and the liquidity of its positions whilst ignoring the index. Performance can sometimes be quite variable when compared to the index.

It looks to invest purely in industrial companies whilst also considering the ESG factors (environmental, social and governance).

BSA Limited (ASX: BSA)

Naos describes BSA as a solutions-focused technology services small cap ASX share.

BSA assists clients in implementing their physical assets, needs and goals in the areas of building services, infrastructure and telecommunications. BSA clients include the National Broadband Network (NBN), Aldi Supermarkets, Foxtel and the Fiona Stanley Hospital.

In a recent monthly update, Naos pointed out that BSA announced two significant releases that the fundie believes will provide the company with an excellent base of work with tier-1 clients for the foreseeable future.

Naos said that most significantly, BSA was able to secure a renewal contract with NBN for up to 8 years commencing in early 2021.

Based on the initial contract revenue figures, BSA has secured a greater share of the overall NBN maintenance work due to what the fundie believes has been high levels of service and customer satisfaction, which has allowed BSA to gain market share from far larger competitors.

BSA also announced in December that it had successfully secured a five-year contract with Telstra Corporation Ltd (ASX: TLS), focusing on property and telecommunication asset works in Tasmania and Victoria.

In addition to those two contract wins, over 2020 BSA was able to secure a new contract with Foxtel as its sole contract provider. It was also able to successfully move into the mobile and wireless space with clients such as the NSW Telco Authority.

Naos said that if the small cap ASX share can continue to innovate in the way it meets and exceeds its clients requirements then the fundie believes BSA has the potential to be a business that generates more than $650 million of revenue.

According to Commsec, the BSA share price is valued at 10x FY23's estimated earnings.

Big River Industries Ltd (ASX: BRI)

Big River describes itself as an integrated Australian timber products business that operates across the full continuum from procurement of raw materials through to sale of finished products to end users.

Naos pointed out that the small cap ASX share announced a large acquisition of a business called Timberwood for a consideration of $24 million which equates to 5.1x the pro forma FY20 earnings before interest, tax, depreciation and amortisation (EBITDA).

Timberwood is a specialty manufacturer and distributor of a range of panel products. The acquisition was majority funded by a $20 million placement which, after the acquisition of Timberwood and the closure of the Wagga Wagga facility, will provide Big River Industries with significant financial flexibility to continue to acquire similar complementary businesses.

The company also provided a trading update, it's now expecting underlying net profit after tax to be more than 10% higher than the prior corresponding period. Naos said this is a strong result considering the prior period didn't include COVID-19 impacts.

Motley Fool contributor Tristan Harrison owns shares of NAO SMLCAP FPO. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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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