This month could be the perfect time to look at two ASX shares that may generate significant growth in FY22 and beyond.
Both of these companies are smaller than the ASX blue chips like Australia and New Zealand Banking Group Ltd (ASX: ANZ) and BHP Group Ltd (ASX: BHP). However, they may have the ability to produce more capital growth because of their smaller starting size.
Lovisa Holdings Ltd (ASX: LOV)
This is a business that sells affordable jewellery to customers.
It has more than 500 stores across the world. While the biggest number (153 at the end of FY21) is in Australia, it has growing store networks in Europe, Asia, the Middle East, South Africa, the UK, and the USA. COVID-19 caused disruption to growth, but the company has plans to continue the rollout. The Beeline acquisition helped with the expansion into Europe, with 87 stores converted to Lovisa branding.
FY21 demonstrated rising profitability at various levels of the business. Revenue grew 18.9% to $288 million, pre AASB16 earnings before interest and tax (EBIT) increased 39.4% to $42.7 million, and net profit after tax (NPAT) grew by 43.3% to $27.7 million. The company also returned to paying a dividend.
In the first eight weeks of FY22, the ASX share saw that total sales were up 56% year on year, despite lockdowns in some locations.
While 2021 calendar year store opening growth is expected to be slowed due to logistics challenges, it’s focused on opportunities for increasing its store network and its digital presence. It currently has 551 stores.
The broker Morgan Stanley thinks the company is a buy. It believes the Lovisa share price is valued at 36x FY23’s estimated earnings.
Healthia Ltd (ASX: HLA)
As the name may suggest, Healthia is a healthcare business. It is aiming to build Australia’s leading diversified healthcare business across the divisions of ‘bodies and minds’, ‘feet and ankles’, and ‘eyes and ears’.
The company has a two-pronged approach to achieve growth.
The first is with its organic growth. It says its model has demonstrated the ability to accelerate organic growth as a result of a focus and investment in industry-leading education, tools, and support for clinicians and team members. In FY20 it achieved organic revenue growth of 5.3% and in FY21 it was 9.1%.
The second area of growth is the ASX share’s acquisitions to expand and diversify its operations. Part of that strategy is to use ‘clinic class shares’ to retain and incentivise clinicians. These shares are non-voting but entitle the holder to a share of any dividend declared.
One of the latest acquisitions has been Back in Motion (BIM) for a total cost of $88.4 million, being $64.6 million in cash and $16.1 million of clinic class shares, as well as $5.8 million of new shares and $1.9 cash payable after completion of the acquisition. BIM is one of the largest and fastest-growing physiotherapy businesses in Australia and New Zealand.
The BIM deal made Healthia the No. 1 provider of physiotherapy services in Australia with a total of 122 physiotherapy clinics. In FY21, BIM generated underlying revenue of $62.9 million and underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) of $12.3 million respectively.
In FY21, the Healthia business reported underlying revenue growth of 51.8% to $140.41 million and underlying EBITDA of $21.47 million (up 62.3%). Underlying net profit grew 91.4% to $8.86 million. The ASX share also paid a full-year dividend of 4.5 cents per share.