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 16.4% per annum since the strategy changed in July 2010, which is superior to the S&P/ASX All Ordinaries Accumulation Index return of 9.6% per annum.
These are the two ASX shares that WAM outlined in its most recent monthly update:
Johns Lyng Group Ltd (ASX: JLG)
The fund manager explained that this company is all about providing building and restoration services in Australia for properties and contents that have been damaged by events like weather and fire.
It operates in all the major metro areas as well as high-risk regional areas like Far North Queensland.
In June, the ASX share announced an increase of its earnings expectations by 10% compared to the guidance given in February, bringing the earnings before interest, tax, depreciation and amortisation (EBITDA) to $52.1 million.
WAM explained that the increase was driven by strong demand for core services and catastrophe recovery services in northern New South Wales and southern Queensland.
The fund manager remains positive on the outlook, underpinned by a “strong” pipeline of work and balance sheet capacity to execute on additional earnings accretive acquisitions, with three businesses acquired in the strata and building management sector subsequent to the year end.
Maas Group Holdings Ltd (ASX: MGH)
WAM Research’s other idea that it outlined was Maas Group. This business was only listed in December 2020, though it was founded in 2002.
The LIC explains that Maas Group is a founder-led, vertically integrated construction materials, equipment and services business. It operates across the civil, infrastructure, mining and real estate markets.
The ASX share is led by the founder and significant shareholder, Wes Mass, the company operates a fleet of more than 400 machines with over 850 employees.
It was noted by WAM that in a June business update, Maas Group confirmed earnings guidance for FY21 with EBITDA of between $70 million to $77 million and announced an increase in debt facilities which were partially used to deploy into earnings accretive acquisitions of businesses and property assets to support long-term growth.
In early July, Maas Group announced a capital raising of up to $79 million to provide capacity to fund further growth and acquisition initiatives, including near-term opportunities in residential property and construction materials.
The fund manager is positive on Maas Group for the competitive advantages offered by its vertical integration and exposure to growing end markets, supported by further accretive acquisitions.