2 ASX shares rated as strong buys by brokers

There are some exciting ASX shares that have been rated as strong buys by brokers. One of them is Baby Bunting Group Ltd (ASX:BBN).

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There are some exciting ASX shares that have been rated as buys by multiple brokers, suggesting that they could be strong contenders for your attention.

If several brokers think a business is a buy then it may mean an opportunity is staring the market in the face. Or perhaps all of the brokers are wrong at the same time.

Here are two ASX shares that are highly rated:

Baby Bunting Group Ltd (ASX: BBN)

Baby Bunting is the leading baby and infant product retailer in Australia. It has a national store network, with approximately 60 shops around Australia. It has plans to grow to over 100 stores in Australia over time.

But that’s not the only focus of the business. Baby Bunting is investing in its digital capabilities to satisfy the post-COVID e-commerce demand. Whilst website site visits increased by 39% during the FY21 first half period, the conversion rate improved 66 basis points and total online sales rose 95.9%.

Baby Bunting is currently rated as a buy by at least five brokers, including Morgan Stanley which has a price target on the ASX share of $6.30.

The company is seeing profit rise faster than sales growth, which is positive for shareholder returns. FY21 half-year sales rose 16.6% and pro forma net profit increased 43.5% to $10.8 million. That was thanks to operating leverage with various parts of the business, including the gross profit margin growing by 41 basis points.

Baby Bunting has increased its growth prospects with plans for New Zealand expansion. The first store is expected to open in FY22 as part of a network of at least 10 stores.

FY21 second half growth is expected to be solid, with comparable store growth for the first six weeks at the second half of 18.5%

According to Morgan Stanley, the Baby Bunting share price is valued at 27x FY22’s estimated earnings.

Australian Finance Group Ltd (ASX: AFG)

Australian Finance Group is one of the biggest mortgage brokers in the country. The company has around 3,000 affiliated mortgage brokers. It’s currently rated as a buy by at least three brokers including Macquarie Group Ltd (ASX: MQG) with a price target of $3.06.

It is benefiting from the strong market conditions for real estate. It said in its FY21 half-year result that it experienced year on year growth of residential settlements in each month, with strong growth in each state. The residential trail book increased by 5% to $160 billion. HY21 residential settlements went up 24% to $20.9 billion.

The ASX share revealed its profit rose quickly during the first half, with statutory net profit going up 36% to $25 million and underlying cash profit rising 41% to $24.9 million. Earnings per share (EPS) went up 9% to 9.2 cents.

The growth has continued into the second half of FY21 with January 2021 residential volume rising 28% to $4.8 billion.

AFG management said that it has a strong balance sheet, no debt, a solid pipeline of lodgements and good cashflow.

It paid an interim dividend of 5.9 cents per share. Macquarie thinks it’s going to pay a full year dividend of 12.3 cents, translating to a grossed-up dividend yield of 6.4%.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Baby Bunting. 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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