There may be some high-quality ASX shares out there that have the potential to deliver outsized investment returns over the next few years.
Here are some ideas:
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is a growing ASX share involved in facilitating electronic donations to large and medium US churches. It also offers other tools including donor tools, finance tools and a custom community app and a church management system.
Fund manager Ben Griffiths from Eley Griffiths said: “Over the last 12 months it has become clear Pushpay is at an inflection point for both cashflow and earnings. Under the stewardship of CEO Bruce Gordon, Pushpay has transitioned from a founder-led investment phase into an optimize/monetization phase. What is more surprising is the very conservative nature of the accounts (a rarity in small cap tech, outside Iress Ltd (ASX: IRE)). We believe the next few years for Pushpay will be rewarding and that COVID-19 will accelerate the already entrenched trend to digital giving/engagement from cash.”
The company recently upgraded its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) guidance to a range of US$56 million to US$60 million after receiving more processing volume in December than expected during this COVID-19 period. This guidance means management are expecting the company to more than double its EBITDAF in FY21.
The ASX share is trying to become the preferred provider of mission critical software to the US faith sector. It’s aiming for US$1 billion revenue from this sector.
Pushpay expects operating leverage to continue to accrue to the business over the rest of the current financial year, and over the longer-term.
According to Commsec, at the current Pushpay share price it’s valued at 19x FY23’s estimated earnings.
Pacific Current Group Ltd (ASX: PAC)
Pacific Current is an ASX share that takes investment stakes in fund managers globally and then helps them grow with capital and/or Pacific Current’s expertise.
Dean Fremder of Perpetual Limited (ASX: PPT) said when Pacific Current shares were a bit lower: “The stock’s really cheap. It is on nine times earnings. It’s growing earnings at double digits, so more than 10% a year. It’s paying a 6.5% fully franked yield. And most excitingly, we think they can pay out a much larger portion of their earnings as dividends. We see no reason, given the surplus franking credits they have on the balance sheet, they can’t be paying a 10 or 11% fully franked yield in the next 12 months. So, really excited about that one.”
In FY20 Pacific Current grew its funds under management (FUM) by 62% to $93 billion, which drove underlying earnings per share (EPS) higher by 18% to $0.51. The Pacific Current board increased the annual dividend by 40% to $0.35.
According to Commsec, the Pacific Current share price is valued at 9x FY23’s estimated earnings. It also has a trailing grossed-up dividend yield of 8%.
Magellan Financial Group Ltd (ASX: MFG)
Magellan is a large fund manager. It manages just over $100 billion of funds for both institutions and retail investors.
Dr Peter Gardner from Plato Investment Management said about the ASX share and its FY20 result: “Magellan had a really good result. Their profit was up 20%. That final dividend was 10% higher than last year. What bodes well for future earnings for Magellan is that their average funds under management was up by 26% over the year. They’re actually doing really well in the current market environment. The growth stocks in the US, which they’re exposed to are doing really well.”
According to Commsec, the ASX share is valued at 20x FY21’s estimated earnings compared to the current Magellan share price. It also has a projected FY21 grossed-up dividend yield of 6%.