High-performing fund manager Wilson Asset Management (WAM) has revealed two ASX shares that it rates as buys within the WAM Research Limited (ASX: WAX) portfolio.
WAM operates several listed investment companies (LICs). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Leaders Ltd (ASX: WLE).
One of the LICs is called WAM Research, which looks at smaller businesses on the ASX.
WAM describes WAM Research as a LIC that 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 16.1% 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:
BWX Ltd (ASX: BWX)
BWX is described by WAM as a leading wellness company that sells natural beauty products throughout Australia, the US, Canada and the UK.
It owns and sells a number of different brands including Sukin, Andalou Naturals, Mineral Fusion and Nourished Life.
Last month, BWX announced that it had signed a 5-year, equity-linked strategic partnership with Chemist Warehouse, with the entire product range available online and an increased store presence in Australia, New Zealand and Ireland.
This new partnership will see BWX as a platinum supplier to Chemist Warehouse in exchange for issuing 881,613 shares, which equates to 0.6% of BWX's share capital base, with potential future share issues based on performance targets.
WAM said that the partnership is expected to result in positive earnings per share (EPS) accretion for the ASX share within 12 months and is indicative of BWX's opportunities for growth.
The fund manager is positive on BWX management's 'go global, go mainstream' strategy, as the company now has 1.4 million total distribution points for all core brands globally and has forecast this to grow to over 2 million in FY22.
Codan Limited (ASX: CDA)
Codan is based out of South Australia. It's a business that's involved in making equipment relating to communications, metal detection and mining technology for various groups like defence groups, governments and mining businesses for use in harsh environments.
The ASX share recently announced an acquisition called Domo Tactical Communications for $114 million. It's a US business and it's a wireless communications technology provider that has over 20 US government agencies as clients, as well as the UK, Canada, Australia and New Zealand.
The company expects that this acquisition will add to earnings. In the first 12 months of owning the business, Codan expects that Domo Tactical will generate $90 million of sales, $14 million of earnings before interest, tax, depreciation and amortisation (EBITDA) and $9 million of profit before tax.
WAM Research benefited from the Codan share price run up during February 2021 after its result release where sales grew 14% to $194 million and it made the biggest ever profit in its half-year result. Codan's board grew the interim dividend by 40%.
