There are some fund managers out there that have positive or bullish thoughts about some ASX shares.
Spheria Emerging Companies Ltd (ASX: SEC) is one of the listed funds on the ASX, it recently shared some thoughts about some of the positions in its portfolio.
Spheria’s portfolio has outperformed its benchmark by more than 10% over the last six months.
These are two of the ASX shares that it talked about:
Fletcher Building Limited (ASX: FBU)
Fletcher Building was the largest position in the Spheria portfolio at the end of November 2020. It made up 4.3% of the portfolio.
This company is a diversified construction business. It makes building products including insulation and cement. Fletcher Building also operates retail businesses that sells those products and others to tradespeople across the Tasman. The company also builds homes, buildings and infrastructure.
Spheria said that Fletcher Building was the lead contributor to the portfolio, gaining 39% during the month on the back of a strong trading update for the first four months of the year followed by a strong profit guidance increase towards the end of the month.
In the first four months it saw revenue up slightly by 1%, with earnings before interest and tax (EBIT) growing by $80 million to $227 million. The EBIT margin rose by 2.9 percentage points to 8.4% because of the improved operating efficiency. In the first half of FY21, Fletcher Building is expecting EBIT to be in the range of $305 million to $320 million, up from $219 million in the prior corresponding period.
The fundie explained that Fletcher Building is seeing the benefit of a recovering housing market in both Australia and New Zealand plus the benefits of streamlining its operations over the recent housing downturns. Since the sale of the Formica division around two years ago, the Fletcher Building balance sheet has been lowly geared, putting the business in a good position for a re-bound according to Spheria.
Fletcher Building also said recently that the board expects the company will resume dividend payments in FY21.
A2B Australia Ltd (ASX: A2B)
A2B was another performer for the Spheria portfolio in November, rising by 37%.
It’s the business behind Cabcharge, Silver Service, 13cabs and other brands. Cabcharge allows passengers and drivers access to fast and secure cashless payment methods. Silver Service is a premium taxi service. 13cabs provides the booking service platform, it trains drivers and helps them obtain a taxi licence, buying a vehicle and it also helps with insurance.
Spheria said that the ASX share is perceived as being a beneficiary of social movement. Having Melbourne emerge from lockdown has clearly helped the short-term outlook for A2B. The fund manager believes the company is misperceived on many levels.
The first misconception, according to the fundie, is that it’s suffering major disruption from ridesharing companies. It thinks this is an incorrect view because ridesharing has grown the overall personal transport market, it hasn’t dramatically reduced the number of cab trips being taken.
The fund manager believes the second major misperception is that the company doesn’t have any growth potential. Spheria pointed that A2B has been heavily re-investing into payments and cab-hailing technology.
The ASX share’s present valuation is still incredibly supportive and the outlook for the business both here and internationally has hardly been stronger. Despite the re-rating over the month, the fundie believes A2B is still only trading on an enterprise value / EBIT ratio of 7 times.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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