Respected fund manager Wilson Asset Management (WAM) has recently identified two top small cap ASX shares that it owns in its microcap 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 24.1% per annum since inception in June 2017, which is superior to the S&P/ASX Small Ordinaries Accumulation Index average return of 12%.
These are the leading two small cap ASX shares that WAM outlined in its most recent monthly update:
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Silk Laser Australia Ltd (ASX: SLA)
WAM describes Silk Laser as a business that operates a network of specialist clinics offering non-surgical aesthetic services and products. In June, the company reached a milestone of 60 clinics, including ten new clinics opened during FY21.
The fund manager pointed out that Silk announced a $52 million strategic acquisition of Australian Skin Clinics and The Cosmetic Clinic in New Zealand. This almost doubled its clinic footprint to 117 and progressing its medium-term network plan of 150 clinics.
The small cap ASX share announced a $20 million capital raising to partially fund the acquisition, with management expecting the deal to deliver greater than 20% earnings per share (EPS) accretion before synergies.
WAM Microcap said that it's still positive on Silk because of its "strong" organic growth profile, the benefit of synergies and the potential and capacity for further accretive acquisitions.
Atomos Ltd (ASX: AMS)
The small cap ASX share manager explained that Atomos is a global provider of digital imaging creation hardware and software tools for video professionals.
Atomos is headquartered in Melbourne, it creates "market-leading" 4K and HD Apple ProRes monitor-recorders, used by video professionals for content creation, increasing video quality and reducing production costs.
WAM pointed out that in June, Atomos strengthened is management team with Estelle McGechie, who has been picked as the chief product officer and was previously a product manager at Apple in video applications.
The small cap ASX share has reported a 73% increase of its sales in FY21 to more than $77 million. The fund manager said that momentum has continued to build through the second half of the year with sales of $44.2 million. Those second half sales represented a 275% increase on the prior corresponding six month period.
WAM Microcap remains positive on Atomos with additional product releases into the professional and general consumer categories, while additional upside in operating leverage is "compelling" because of a relatively stable fixed cost base.
