The fund manager Wilson Asset Management (WAM) has recently identified two top small cap ASX shares that it owns in its portfolio that could be ideas.
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 24.2% 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 two small cap ASX shares that WAM outlined in its most recent monthly update:
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Silk Logistics Holdings Ltd (ASX: SLH)
WAM explains that Silk Logistics is one of the largest third-party logistics suppliers in Australia.
Over the last several years, the business have been active with making acquisitions. The business has been successful at this, according to the fund manager. Silk Logistics has benefited from industry consolidation.
The business recently listed, in July 2021. The Silk Logistics share price increased by 25% on the first day of trading.
WAM explained that Silk Logistics is a beneficiary of the tailwinds in the logistics sector triggered partly by the COVID-19 pandemic, which has led to a surge in demand for delivery services.
The fund manager likes the long-term outlook for the ASX share, targeting industries less impacted by economic downturns such as food and packaged agriculture products.
It was also pointed out that Silk Logistics is investing in tracking technology that "gives visibility" to the inefficiencies in a supply chain, adding to its customer service offering and improving its competitive position.
Swoop Holdings Ltd (ASX: SWP)
Swoop is the other ASX share that WAM Microcap noted.
This business is an Australian internet provider that is headquartered in Victoria and has expanded into South Australia. It listed onto the ASX a few months ago – there was apparently a lot of demand from both institutional investors and retail investors for the capital raising which was $20 million in size.
Talking about the bull case for the business, the fund manager said that it's a beneficiary of the increased demand for home internet in a world where many more people are working from home because of COVID-19.
WAM believes Swoop's growth potential has increased after the acquisition of the South Australian based wireless broadband provider Wan Solutions, which trades as Beam Internet. The deal means Swoop can use Beam's recently upgraded network to grow well in the South Australian market.
