2 exciting small cap ASX shares to buy: experts

DGL Group is one of the exciting ASX small caps to consider.

| More on:
Goldfish leaping out of its small bowl into a larger bowl

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The fund manager Wilson Asset Management has revealed 2 small cap ASX shares that it likes
  • Packaging business Pro-Pac Packaging is rated as a buy due to its good valuation
  • DGL Group is liked thanks to the large rise in demand of Adblue and the company's high barriers to entry

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 buy 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 typically 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 24.6% 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:

Pro-Pac Packaging Limited (ASX: PPG)

The Pro-Pac Packaging share price has been falling in recent months, however WAM still likes the business.

The fund manager attributed the poor performance to pressures from the Omicron COVID variant.

What does Pro-Pac Packaging do? It supplies a wide range of packaging products and services into industries such as primary produce, food and food processing, agriculture, and fast-moving consumer goods.

In the small cap ASX share's December trading update, it noted it was experiencing labour shortages, inflationary pressures, and ongoing global supply chain problems that are impacting the business.

WAM invested in the business because the fund manager was attracted by the valuation and management's plan to reinvigorate revenue growth.

It's expected that the COVID-19 impacts will eventually subside and WAM remains holders of the company within the portfolio based on its attractive valuation.

DGL Group Ltd (ASX: DGL)

One of the small cap ASX shares that featured in the WAM Microcap portfolio as a top 20 position was DGL Group.

This small cap ASX share was described as a founder-led company offering specialty chemical formulation and manufacturing, warehousing and distribution, waste management, and environmental solutions to over 3,100 customers across Australia and New Zealand.

WAM noted that DGL Group recently held its first annual general meeting (AGM) where management confirmed that the business was on track to exceed its earnings expectations that were outlined in the prospectus with its initial public offering (IPO) in May 2021.

After the acquisition of AUSblue in October 2021, DGL Group has seen a surge in demand in the past month for diesel exhaust fluid AdBlue. This fluid reportedly removes nitrous oxides, which helps reduce harmful emissions and should provide a positive tailwind for earnings in the near term.

The fund manager said that it invested in DGL Group due to its strong barriers to entry and its ability to pursue strategic acquisitions that add to earnings, both of which "will underpin its growth profile over the years to come."

Motley Fool contributor Tristan Harrison owns WAM MICRO FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended DGL Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Opinions

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Opinions

2 ASX shares I have been buying in 2024!

I’m a believer in the long-term outlook of these stocks.

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »

Father in the ocean with his daughters, symbolising passive income.
Dividend Investing

I'd spend $8k on these ASX 200 shares today to target a $6,102 annual passive income

I believe these ASX 200 shares will continue rewarding passive income investors for years to come.

Read more »

Happy woman looking for groceries. as she watches the Coles share price and Woolworths share price on her phone
Opinions

Why I bought this ASX 200 stock instead of Woolworths

I decided to put this stock in my shopping basket over Woolies.

Read more »

A happy construction worker or miner holds a fistfull of Australian money, indicating a dividends windfall
Dividend Investing

Invest $12,000 in Woodside stock and get $5,700 in passive income

Reliable dividend shares are everywhere on the ASX. Here's how you could use that to your advantage.

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Cheap Shares

1 secretly cheap ASX 200 stock I'm buying for the long run

The best performer on the index last year has had a poor start to 2024. Let's examine whether this is…

Read more »

ventilator mask
Opinions

Here's why I think the Resmed share price should be 18% higher

Just because a company's share price has gone up doesn't mean it's no longer good value.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Index investing

3 top ASX index funds to buy now

I think these index funds are well worth a look right now.

Read more »