2 compelling ASX shares rated as buys by brokers

These 2 ASX shares are compelling and could be buys according to leading brokers. One idea is dairy business Bega Cheese Ltd (ASX:BGA).

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Brokers have been searching the ASX for potential opportunities. The two ASX shares in this article have rated as buys.

Businesses that multiple brokers like could be interesting to look at. The below two stocks are liked by several analysts:

Reject Shop Ltd (ASX: TRS)

Reject Shop has been rated as a buy by at least three analysts. The discount retail store ASX share is rated as a buy by the broker Morgan Stanley, which has a price target on Reject Shop of $10.

The broker likes Reject Shop for its roll-out targets, careful management of money and improving margins. After seeing the FY21 half-year result, the Morgan Stanley decided to increase its expectations of FY21 earnings by more than a third.

Looking at that actual interim result, Reject Shop reported flat comparable store sales and a overall sales decline of 0.3% to $434.3 million. However, before AASB 16 lease accounting, earnings before interest, tax, depreciation and amortisation (EBITDA) rose 20.8% to $31.1 million, earnings before interest and tax (EBIT) grew 44.9% to $23.3 million and net profit after tax (NPAT) grew 46.5% to $16.3 million.

The ASX share is currently working on the “fix” phase of its strategy as it looks to reduce costs, exit expensive store leases and make stores more efficient.

Once the cost base has been established, the business will open more stores and work on an online offering. Management believe the discount variety sector presents a significant opportunity for growth over the medium to long term.

According to Morgan Stanley, the Reject Shop share price is valued at 17x FY22’s estimated earnings.

Bega Cheese Ltd (ASX: BGA)

Bega Cheese is one of Australia’s largest dairy businesses. It sells a variety of products including cheese, butter, peanut butter, vegemite, ZoOsh dips, mayonnaise and dressings.

It’s currently rated as a buy by three brokers including UBS which has a price target on Bega Cheese of $6.80 over the next 12 months.

The broker was pleased by the HY21 result thanks to the bulk business. It noted the comments by management that seemed positive.

In the first six months of FY21, the ASX share normalised EBITDA grew 51% and profit after tax rose 98%.

The dairy business said that it has made significant progress in its ambition to develop the branded segment of its business. That’s why it spent $534.1 million on acquiring Lion Drinks and Dairy which expanded it into other categories including yoghurt, white milk and flavoured milk.

Bega Cheese believes that the acquisition will create the opportunity for significant synergies. The company also said that the international branded food business continues to grow despite COVID-19 affecting some key export markets. The acquisition provides a platform for further growth in international markets according to management.

According to UBS, Bega Cheese is valued at 19x FY22’s estimated earnings.

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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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