Spheria Emerging Companies Ltd (ASX: SEC) has identified a few ASX shares that it believes are opportunities at the moment.
What is Spheria Emerging Companies?
This is a listed investment company (LIC) that is managed by Spheria Asset Management.
It tries to look at the smaller end of the market for opportunities to beat the market.
Spheria Emerging Companies has been successful with that goal. Over the last year the LIC's net portfolio performance has been a return of 29.8%, outperforming the S&P/ASX Small Ordinaries Accumulation Index's return of 17.2%. Since inception in November 2017, the net return has been 9.1% per annum – superior to the benchmark return of 7.4% per annum.
The LIC owns a number of interesting ASX shares in its portfolio such as Fletcher Building Limited (ASX: FBU), HT&E Ltd (ASX: HT1), Blackmores Limited (ASX: BKL), Healius Ltd (ASX: HLS), Adbri Ltd (ASX: ABC) and Class Ltd (ASX: CL1).
These are manager's latest thoughts on some ASX shares it thinks are opportunities:
Seven West Media Ltd (ASX: SWM)
Seven West was the largest contributor to the Spheria Emerging Companies portfolio in February. Spheria said this was thanks to reporting a result that was well ahead of market expectations as television advertising returned to growth during the fourth quarter of the 2020 calendar year. Costs were better that expected and the balance sheet was improved.
A deal about news with Google will also add to revenue and profit. Spheria believes that stronger viewer numbers should help increase revenue and potential news about the divestment of studios and/or towers may also help.
Despite the strong share price movement recently, Spheria said that the Seven West valuation is on a cheaper valuation multiple compared to its nearest listed peer.
Corporate Travel Management Ltd (ASX: CTD)
Corporate Travel was another strong performer last month. Spheria pointed to the "respectable" result, low cash burn and increasing market share as reasons to be positive. The acquisition of the US business Travel & Transport was also a factor.
The LIC believes that Corporate Travel Management is positioned to return to good profitability once the western world emerges from travel restrictions due to COVID-19. The ASX share still has many months of liquidity at the current cash burn rate.
Vista Group International Ltd (ASX: VGL)
Vista was another holding that returned over 20% during the month.
Spheria explained that Vista dominates the market for software in the global cinema exhibition, distribution and production markets.
Vista has been hit hard by the COVID-19 pandemic because of the amount of cinemas that have been closed over the past year. However, the ASX share has been able to keep the cash burn to a low level, according to the fund manager. It still has 20 months of liquidity left at the current burn rate, which should improve as vaccines are rolled out in markets like North America, Europe and the UK.
The thinking behind the LIC's choice of Vista is that it believes it's well placed to return to strong levels of profitability as the pandemic wanes. At around 2.5x historical revenue, Spheria believes the business is undervalued if it can return to prior levels of earnings.
