High-performing fund manager Wilson Asset Management (WAM) has revealed two ASX shares that it rates as buys within the WAM Research Limited (ASX: WAX) portfolio.
WAM operates several listed investment companies (LICs). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Leaders Ltd (ASX: WLE).
One of the LICs is called WAM Research, which looks at smaller businesses on the ASX.
WAM describes WAM Research as a LIC that invests in the most compelling undervalued growth opportunities in the Australian market.
The WAM Research portfolio has delivered gross returns (that's before fees, expenses and taxes) of 16.3% per annum since the strategy changed in July 2010, which is superior to the S&P/ASX All Ordinaries Accumulation Index return of 9.5% per annum.
These are the two ASX shares that WAM outlined in its most recent monthly update:
Virtus Health Ltd (ASX: VRT)
Virtus Health is a fertility business. WAM Research explains that it helps more than 5,000 people become parents each year as the largest provider of assisted reproductive services in Australia, the market leader in Ireland and Denmark, and a growing presence in Singapore and the UK.
It operates 43 in vitro fertilisation (IVF) clinics globally, as well as seven day hospitals and the Virtus diagnostic and pathology service.
As it recovers from the impacts of the COVID-19 pandemic, Virtus is seeing a "strong uplift" in demand for IVF services.
The ASX share is considering licensing its technology through its precision fertility capabilities to other IVF players globally. WAM Research said this would be a revenue stream which is not capital intensive, and a strategy the fund manager believes will see significant upside.
The fund manager is also positive on Virtus Health CEO Kate Munnings, who was appointed in March 2020. WAM Research thinks Ms Munnings has the ability to monetise the intellectual property within the organisation to pursue other revenue sources in precision fertility, genetics testing and digitalisation.
Fletcher Building Limited (ASX: FBU)
The other ASX share that WAM Research referred to was Fletcher Building, which is a manufacturer, home builder and partner on major construction and infrastructure projects.
The fund manager pointed out that in May, Fletcher Building announced that earnings before interest, tax, depreciation and amortisation (EBITDA) for FY21 is expected to be between $650 million to $665 million, which is at the upper end of its previous guidance range.
WAM Research also referred to the capital return that Fletcher Building is going to return to investors in the form of a NZ$300 million on-market share buyback as a result of its strong balance sheet.
The fund manager is positive on the ASX share as building market activity remains robust and government stimulus continues to support the sector. This will underpin the delivery of a "strong" uplift in EBITDA margins over the next one or two years.
