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 Research Limited (ASX: WAX) which looks at smaller businesses on the ASX.
WAM says WAM Research invests in the most compelling undervalued growth opportunities in the Australian market.
The WAM Research portfolio has delivered gross returns (that’s before fees, expenses and taxes) of 15.8% per annum since the strategy changed in July 2010, which is superior to the S&P/ASX All Ordinaries Accumulation Index return of 8.9% per annum.
These are the two ASX shares that WAM outlined in its most recent monthly update:
Imdex Limited (ASX: IMD)
WAM described Imdex as a mining services and technology company that develops drilling optimisation products and sensor for mining companies to conduct minerals exploration. According to the ASX, Imdex has a market capitalisation of $664 million.
The fund manager said that the company is set to benefit from increasing commodity prices in gold, copper, and iron ore, which form 82% of its commodity exposure and should contribute to increased levels of exploration expenditure in 2021.
Imdex has a net cash balance sheet and WAM thinks the company has the potential to make earnings accretive acquisitions.
In FY20 the ASX share saw its net profit decline by 17% to $21.8 million, however operating cash flow improved by 31% to $52.4 million.
In July 2020, Imdex acquired AusSpec International, which the company said was the world’s leading provider of spectral mineralogy through its platform. The co-founder of AusSpec is described as the world’s leading spectral mineralogy expert who has built an extensive spectral library over the past five years.
Imdex said that AusSpec has a four-year consistent and profitable growth profile and generates revenue through a software as a service (SaaS) model. The acquisition was immediately cashflow positive.
Australian Finance Group Ltd (ASX: AFG)
The fund manager said that this ASX share operates the largest aggregation platform of mortgage brokers in Australia, with around 3,000 brokers offering business finance, insurance and securitised products. According to the ASX, Australian Finance Group has a market capitalisation of $730 million.
With the company leveraged to new loan originations and refinancing for homeowners, the fund manager sees a positive outlook for the company going forward, driven by a combination of record low interest rates, government stimulus measures and improving consumer confidence.
Australian Finance Group recently gave an update at its annual general meeting (AGM). The quarter ending 30 September 2020 was a record quarter of lodgement activity in the residential broking division. October volumes continued with that momentum.
Significant government incentives at both a federal and state level have targeted the first home buyer market. Due to that, according to the company, the first home buyer market share activity has increased to 23% in October, up from 15% in the same period last year.
Looking at October trading showed increases in lodgements across the country. Lodgement volumes for October exceeded $6.7 billion for the ASX share. That was the highest the company has ever achieved and represented a 16% increase from October last year. WA saw the largest percentage increase in volume with lodgements increasing 41% from the same period last year. Queensland growth was 30%, South Australian growth was 25%, NSW growth was 7% and Victoria growth was 11%.