Respected fund manager Wilson Asset Management (WAM) has recently identified two small cap ASX shares that it owns in its portfolio.
WAM operates several listed investment companies (LICs). Some focus on larger companies like WAM Leaders Ltd (ASX: WLE) and WAM Capital Limited (ASX: WAM).
There's also one called WAM Microcap Limited (ASX: WMI) which targets small cap ASX shares with a market capitalisation under $300 million at the time of acquisition.
WAM says WAM Microcap targets the most exciting undervalued growth opportunities in the Australian microcap market.
The WAM Microcap portfolio has delivered gross returns (that's before fees, expenses and taxes) of 24.5% per annum since inception in June 2017, which is superior to the S&P/ASX Small Ordinaries Accumulation Index average return of 11.5%.
These are the two small cap ASX shares that WAM outlined in its most recent monthly update:
DGL Group Ltd (ASX: DGL)
DGL was created over 20 years ago and listed onto the ASX and NZX a month ago in May 2021.
WAM Microcap explains that DGL is a specialty chemicals and dangerous goods solutions provider servicing over 1,300 customers across Australia, New Zealand and internationally. It operates across 26 sites, with 140,000 tonnes of manufacturing capacity, 126,000 tonnes of chemical storage and 174,000 tonnes of waste processing capacity.
The small cap ASX share's initial public offering (IPO) was oversubscribed. It issued $100 million at $1 per share. The share price has since risen to $1.21.
Wilson Asset Management said that the company has reported strong financial performance, with FY20 pro forma revenue of $180.1 million forecast to increase to $209.7 million in FY22.
The fund manager is still positive on the company's industry position and outlook for organic growth and earnings-accretive acquisitions.
Ardent Leisure Group Ltd (ASX: ALG)
WAM Microcap described Ardent Leisure as a business that services more than 3 million customers annually as the owner and operator of theme parks, indoor entertainment centres and attractions in Australia, including Dreamworld, WhiteWater World and SkyPoint and a growing portfolio of family attractions in the US.
The fund manager pointed out that after a positive trading update in April, the small cap ASX share announced in May the continuation of strong revenue momentum in its US bowling alley operations, Main Event Entertainment, with revenue up 23% in March, 40% in April and 8% in the first week of May against the corresponding period in 2019.
WAM Microcap continues to see upside to earnings, as coronavirus related restrictions ease. It also sees strong optionality existing through portfolio optimisation and asset sales.
