Respected fund manager Wilson Asset Management (WAM) has recently identified two 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 Research Limited (ASX: WAX).
There’s also one called WAM Capital Limited (ASX: WAM) which targets “the most compelling undervalued growth opportunities in the Australian market.”
The WAM Capital portfolio has delivered an investment return of 16.6% per annum since inception in August 1999, before fees, expenses and taxes. This gross return outperformed the S&P/ASX All Ordinaries Accumulation Index return of 8.7% per annum over the same timeframe.
These are the two ASX shares that WAM Capital outlined in its most recent monthly update:
Johns Lyng Group Ltd (ASX: JLG)
WAM explains that Johns Lyng Group is a business that provides building and restoration services across Australia for properties and contents damaged by insurable events, including impact, weather and fire events. It has around 500 employees across Australia and operates in all major metropolitan areas and in high risk regional areas, like Far North Queensland.
The fund manager pointed out that in June, the company announced an upgrade to its earnings forecast, up from guidance given in February, of 10%, bringing earnings before interest, tax, depreciation and amortisation (EBITDA) to $52.1 million.
The increase was driven by strong demand for core services and catastrophe recovery services in New South Wales and southern Queensland.
WAM is still positive about its outlook, underpinned by a “strong” pipeline of work and balance sheet which can fund other acquisitions that would add to earnings. Three businesses have been acquired in the strata and building management sector after the year end.
According to Commsec, the Johns Lyng share price is valued at 39x FY22’s estimated earnings.
Seven West Media Ltd (ASX: SWM)
Seven West is another ASX share that WAM likes at the moment.
It’s described by the fund manager as Australia’s largest diversified media business. It produces content for various media forms including broadcast television, publishing and digital networks.
Seven West comprises the Seven Network and its affiliate channels, as well as The West Australia, The Sunday Times and Seven Studios.
In June, Seven West Media announced a “positive” fourth quarter trading update. WAM noted the ASX share reported advertising revenue growth of more than 45%, with this momentum expected to continue into the quarter ending 30 September 2021.
Seven West said 7plus saw a 62% increase in registered users in the year to date, above the market growth of 50.7%. Digital revenue was up 130% for FY21, with EBITDA of $60 million.
WAM is positive on the ASX share because its digital EBITDA is expected to more than double in FY22. There is also an ongoing focus on controlling costs. Seven West is seeing “strong” free cashflow generation which is contributing to de-leveraging of the balance sheet which the fund manager believes is being undervalued by investors.