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). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Leaders Ltd (ASX: WLE).
There’s also one called WAM Active Limited (ASX: WAA) which looks at businesses it thinks are the most undervalued.
WAM says WAM Active invests in market mispricing opportunities in the Australian market.
The WAM Active portfolio has delivered gross returns (that’s before fees, expenses and taxes) of 12.1% per annum since inception in January 2008, which is superior to the Bloomberg AusBond Bank Bill Index return per annum of 3%.
These are the two ASX shares that WAM outlined in its most recent monthly update:
Domino’s Pizza Enterprises Ltd. (ASX: DMP)
WAM Active explains that Domino’s Pizza is a multinational pizza restaurant chain, with the Australian business representing the largest franchisee outside of the US. It also has operations in Europe and Japan.
The fund manager pointed out that in June, Domino’s Pizza entered its tenth market, with an agreement with Formosa International Hotels Corporation to acquire the corporate stores and franchise rights of Domino’s Taiwan for $79 million on a cash and debt free basis.
Domino’s Pizza is the second largest operator in Taiwan with 157 stores and long-term market potential of more than 400 stores.
WAM says that the deal expands Domino’s Pizza Asian market by more than 18%. It has increase its store count outlook in Asia to 1,900 by 2030 to 2032 as a result of the acquisition.
The fund manager is positive about the future of Domino’s Pizza, with “key” growth markets such as Japan and Germany reaching an inflection point supporting a “robust” organic growth profile. The business has the potential for further acquisitions in the future, according to WAM.
Seven West Media Ltd (ASX: SWM)
Seven West was the other ASX share that WAM Active referenced as an opportunity.
The fund manager described Seven West Media as a large diversified media business. It makes content for television, publishing and digital networks.
Seven West is made up of a few different subsidiaries such as the Seven Network and affiliate channels, as well as The West Australian, The Sunday Times and Seven Studios.
WAM pointed out that, last month, Seven West Media released a “positive” fourth quarter trading update. Those quarterly numbers showed advertising revenue grew by more than 45%. Momentum is expected to continue into the quarter ending 30 September 2021.
Seven West Media’s 7plus has also seen a 62% rise in registered users in the year to date. That was faster growth than the market growth of 50.7%. Digital revenue saw an increase of 130% for FY21, with earnings before interest, tax, depreciation and amortisation (EBITDA) of $60 million.
The fund manager is still positive on Seven West Media, with the company expecting to more than double its digital EBITDA in FY22 and continuing cost control. WAM also pointed to the strong free cashflow which is helping de-leverage the balance sheet, which WAM believes is being undervalued by the market.