Wilson Asset Management (WAM) thinks these 2 ASX shares are a buy

Wilson Asset Management LIC WAM Capital (ASX:WAM) has outlined the investment case for 2 ASX shares including Codan Limited (ASX:CDA).

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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). Some focus on larger companies like WAM Leaders Ltd (ASX: WLE) and WAM Research Limited (ASX: WAX).

There’s also one called WAM Capital Limited (ASX: WAM) which targets “the most compelling undervalued growth opportunities in the Australian market.”

The WAM Capital portfolio has delivered an investment return of 16.4% per annum since inception in August 1999, before fees, expenses and taxes. This gross return outperformed the S&P/ASX All Ordinaries Accumulation Index return of 8.3% per annum over the same timeframe.

These are the two ASX shares that WAM Capital outlined in its most recent monthly update:

Codan Limited (ASX: CDA)

Codan is a manufacturer and supplier of communications, metal detection and mining technology for use in difficult environments by humanitarian organisations, security and military groups, mining companies and governments.

WAM said that in February, the company announced it was going to wholly acquire the US-based business called Domo Tactical Communications for $114 million, a wireless communications technology provider that supplies more than 20 US government agencies, as well as the ‘Five Eyes’ intelligence communities. Five Eyes is an alliance of intelligence groups from the US, the UK, New Zealand, Australia and Canada.

Codan says that the acquisition will be earnings accretive. In the first year under the ASX share’s ownership it is expected to make $90 million of revenue, $14 million of earnings before interest, tax, depreciation and amortisation (EBITDA) and $9 million in profit before tax.

Codan’s share price rose in February after news of the acquisition as well as the FY21 half-year report, where Codan revealed a record profit result. Sales grew by 14% to $194 million. Codan also grew its dividend by 40% to 10.5 cents per share.

Virgin Money UK CDI (ASX: VUK)

Virgin Money is one of the larger banks in the UK. It has 6.4 million customers through typical retail and business banking services.

The fund manager said that Virgin Money reported a solid start to the year during reporting season, with a continued roll-out of its rebranding programme, a return to making a profit in statutory terms and high levels of customer deposits (up 0.9% in the quarter ending 31 December 2020).

The number of deferred loans in the ASX share’s portfolio have been declining – those borrowers were given loan support due to the pandemic.

WAM Capital is positive about Virgin Money UK’s outlook because the investment team believe the UK’s accelerative vaccination program and accommodative fiscal and monetary policies will support the company’s rebound from the COVID-19 pandemic.

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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