Why these 2 ASX 200 shares are undervalued opportunities: WAM

AMP is one of the fund manager’s picks as an undervalued share.

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Key points

  • WAM has picked out two ASX shares which it thinks are undervalued
  • One of its picks is the long-suffering AMP business which is finally seeing some underlying growth
  • Breville is a well-liked, quality appliance maker seeking global growth

Fund manager Wilson Asset Management (WAM) has recently identified two promising S&P/ASX 200 Index (ASX: XJO) shares it owns in one of its portfolios.

WAM operates several listed investment companies (LICs). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Leaders Ltd (ASX: WLE).

There’s also one called WAM Active Limited (ASX: WAA) which looks at businesses it thinks are the most undervalued.

WAM says WAM Active invests in “market mispricing opportunities” in the Australian market.

The WAM Active portfolio has delivered gross returns (that’s before fees, expenses, and taxes) of 10.9% per annum since its inception in January 2008, compared to the Bloomberg AusBond Bank Bill Index return per annum of 2.8%.

These are the two ASX shares that WAM outlined in its most recent monthly update:

AMP Limited (ASX: AMP)

Wilson Asset Management describes AMP as a retail wealth management and banking business operating in Australia and New Zealand with more than 4,000 employees servicing approximately 1.5 million customers.

The fund manager noted that in April, AMP announced it had agreed to sell its funds management arm Collimate Capital’s real estate and domestic infrastructure equity business to DEXUS Property Group (ASX: DXS) and its international infrastructure equity business to DigitalBridge Investment Holdco.

WAM points out that the transactions value Collimate Capital’s business at up to $2 billion, significantly strengthening AMP’s capital position, with plans to use the proceeds to pay down its corporate debt and return capital to shareholders.

WAM believes the sales will allow AMP to focus on driving its ‘core’ banking and retail wealth businesses which can help improve its competitiveness.

In early May, AMP announced that the ASX share’s banking arm’s total loan book increased by $500 in the first quarter of the 2022 calendar year. WAM thinks this shows positive signs of growth.

The fund manager anticipates that the core AMP business will continue to perform “well” and unlock future growth as it completes these transactions.

Breville Group Ltd (ASX: BRG)

Breville describes itself as a leading small electrical appliances provider in the consumer products industry.

In April, the Breville share price declined, which was in line with the broad market exposed to consumer spending as risks of a pending recession intensified with inflation data worsening. WAM thinks this points to a weaker consumer environment.

However, the fund manager is positive on the Breville share price thanks to the company’s ability to continue expanding its addressable market and its long-term expansion plans to go into new geographies.

Breville said in an update in early May, that it was sticking with its FY22 earnings guidance and it’s on track to meet market expectations, with earnings before interest and tax (EBIT) of approximately $156 million for FY22.

WAM continues to believe that the company operates a high-quality business and remains optimistic about the opportunities it can unlock through its global rollout strategy.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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