The high-performing fund manager Wilson Asset Management (WAM) has recently identified two ASX shares that it owns in one of its leading portfolios.
WAM operates several listed investment companies (LICs). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX).
There’s also one called WAM Leaders Ltd (ASX: WLE) which looks at the larger businesses on the ASX.
WAM says WAM Leaders actively invests in the highest quality Australian companies.
The WAM Leaders portfolio has delivered gross returns (that’s before fees, expenses and taxes) of 14.9% per annum since inception in May 2016, which is superior to the S&P/ASX 200 Accumulation Index average return of 10.4%.
These are the ASX shares that WAM outlined in its most recent monthly update:
Endeavour Group Ltd (ASX: EDV)
The businesses within Endeavour, including Dan Murphy’s, have been operating for a long time. However, Endeavour is a newly listed business after the demerger from Woolworths Group Ltd (ASX: WOW) in late June.
Why did the businesses split apart? WAM Leaders said the thinking was the two businesses would become two single-focused best-in-class companies. With Endeavour, it means that the business will have a “broader mandate” for reinvestment.
Endeavour is actually a large business. It has a market capitalisation of around $12.5 billion according to the ASX. It has a combined network of 1,650 stores of Dan Murphy’s and BWS throughout Australia, which are leaders in the retail liquor market. It also has the largest hotels network in Australia with 332 hotel venues.
WAM Leaders outlined why the LIC is interested in the business. It’s expecting a recovery of its hotel earnings from COVID impacts over the coming year and thinks “there is significant upside to organic and inorganic expansion and renovation plans for both its retail liquor and hotel divisions over the medium-term.”
However, WAM Leaders cautioned that it’s going to continue to evaluate its position of this ASX share, in-particular because of the ongoing lockdowns and the company’s first result announcement this reporting season.
Santos Ltd (ASX: STO) (and Oil Search Ltd (ASX: OSH))
The ASX resources sector was lit up over the last month after Oil Search agreed to a merger ratio with Santos.
WAM Leaders pointed out that the merged entity will create a top 20 global oil and gas ASX share. Its assets will be diversified across Australia, Papua New Guinea and Alaska.
The fund manager believes that the resources sector is “ripe for consolidation”. WAM likes the prospects of the combined business with a diverse portfolio of ‘tier one’ assets, substantial synergies by combining corporate, operations and exploration resources, and an investment grade credit rating providing cheaper funding.
With CEO Kevin Gallagher at the helm of the combined business, WAM expects “significant upside to current production and cost targets, and a clear focus on maximising shareholder value.”