Key points
- Fund manager Wilson Asset Management (WAM) has outlined two ASX shares with potential
- The first stock is pathology business Australian Clinical Labs which is benefiting from the high level of COVID testing
- The second company is building and restoration services Johns Lyng which is growing market share and opening up new growth opportunities
Leading fund manager Wilson Asset Management (WAM) has named two ASX shares in its portfolios that it thinks are buys.
Every month, WAM talks about some of the businesses that have performed well and outlines the bullish factors for thinking about the stocks.
Two of the featured ASX shares this month comes from WAM Research Limited (ASX: WAX) and WAM Capital Limited (ASX: WAM), which sometimes target opportunities from the smaller end of the ASX, like these two:
Australian Clinical Labs Ltd (ASX: ACL)
Australian Clinical Labs is described as a leading provider of pathology services in Australia, with 86 accredited laboratories performing services for more than 8 million people annually.
In December, Australian Clinical Labs upgraded its expectations for the FY22 first-half net profit after tax (NPAT) to between $116.3 million to $128 million. This was increased from the previous guidance of between $86.3 million to $94.9 million.
The fund manager notes that the ASX share is experiencing strong demand for coronavirus testing, particularly during the Omicron variant outbreak and recently completed the acquisition of Medlab Pathology, doubling its market share to 20.4% in New South Wales.
WAM thinks that Australian Clinical Labs is a high-quality pathology business that can continue to grow organically through market share gains, due to its "superior technology and processes". The fund manager notes that Australian Clinical Labs has a very strong balance sheet and it also sees the potential for acquisitions in the future that can add to profit.
Johns Lyng Group Ltd (ASX: JLG)
Another ASX share that WAM likes is Johns Lyng which provides building and restoration services across Australia for properties and contents damaged by insurable events, including impact, weather, and fire events.
It operates in all major metropolitan areas and in high-risk regional areas, such as Far North Queensland.
WAM pointed out that in December, the company announced the acceleration of its US growth strategy through the acquisition of Reconstruction Experts, a leading provider of insurance-focused vendor managed repairs services for US$144 million.
This acquisition, considered highly strategic, adds to the company's earnings per share (EPS) and equated to 7.8x earnings before interest, tax, depreciation and amortisation (EBITDA) for the 12 months to 30 June 2021.
The fund manager decided to invest in Johns Lyng Group based on the view that as the largest and most sophisticated provider of emergency building works, the company will continue to grow through market share gains and acquisition.
WAM believes that with the recent acquisition, the company has added another material growth pillar that will underpin longer-term aspirations and earnings growth.
