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 Active Limited (ASX: WAA) which looks at businesses it thinks are the most undervalued.
WAM says WAM Active invests in market mispricing opportunities in the Australian market.
The WAM Active portfolio has delivered gross returns (that’s before fees, expenses and taxes) of 12.1% per annum since inception in January 2008, which is superior to the Bloomberg AusBond Bank Bill Index return per annum of 3%.
These are the two ASX shares that WAM outlined in its most recent monthly update:
Capitol Health Ltd (ASX: CAJ)
WAM explained that Capitol Health operates 63 community-based diagnostic imaging clinics, employing more than 800 staff and delivering more than 1.2 million procedures every year.
The healthcare business beat market expectations with its FY21 half-year result where revenue grew by 5.9% to $85.3 million. Operating earnings before interest, tax, depreciation and amortisation (EBITDA) rose 50.1% to $26.6 million.
Capitol Health also reported that its operating profit margin was 31.1%, up from 22% in the prior corresponding period. Statutory net profit after tax (NPAT) was $6.2 million – an increase of 131.6% year on year. The interim dividend was maintained at 0.5 cents per share.
WAM was pleased by the fact that the ASX share delivered “robust organic growth” despite having the majority of its business closed during the Melbourne lockdowns. Earnings benefited from a close control on costs.
The fund manager said that a broader rebound in industry demand is a catalyst for future earnings growth, while a stronger balance sheet allows Capital Health to execute earnings accretive acquisitions.
Virgin Money UK CDI (ASX: VUK)
Virgin Money UK is one of the larger banks in the UK, after a merger between CYBG (Clydesdale and Yorkshire Banking Group) and Virgin Money UK. The aim was to gain enough scale to seriously challenge big banks like Barclays and HSBC.
It has a presence on the ASX because CYBG was spun out of National Australia Bank Ltd (ASX: NAB) a few years ago and retained a presence on the ASX.
Virgin Money has 6.4 million customers, which the company helps through its online personal, mortgage and business banking services.
Last month, the UK bank said that it was making a good start to the year with its continued roll-out of its rebranding programme, a return to making a profit in statutory terms and high levels of customer deposits – the quarter ending 31 December 2020 showed growth of 0.9%.
WAM pointed out that Virgin Money’s level of active payment holidays declined across the portfolio. This is like how Australian borrowers were able to get deferrals on their loans from banks like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and NAB due to the impacts of the pandemic on their finances.
The fund manager is positive about Virgin Money UK’s outlook because the UK’s vaccination program and helpful fiscal and monetary policies that may support the company’s rebound from the COVID-19 pandemic.