Fund manager Wilson Asset Management (WAM) recently identified two top small-cap ASX shares in one of the portfolios it manages that look promising.
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 focuses on small-cap ASX shares with a market capitalisation under $300 million at acquisition.
WAM says WAM Microcap targets "the most exciting undervalued growth opportunities in the Australian microcap market".
These are the two small-cap ASX shares the fund manager outlined in its most recent monthly update:
Ridley Corporation Ltd (ASX: RIC)
Ridley is described as Australia's largest commercial provider of high-performance animal nutrition solutions.
The fund manager said that in June, Ridley Corporation attracted attention from other companies looking to purchase its shares after speculation that AGR Partners, a substantial shareholder of the business, is looking to exit.
At the end of May, Ridley Corporation announced its FY23 to FY25 growth plan which supports the ongoing earnings momentum of the business.
WAM said the framework for Ridley Corporation's capital allocation under its growth plan is expected to "allow the company to deliver a total shareholder return (TSR) of over 15% per annum" and an increase in the indicative dividend payment ratio from between 40% to 60%, to 50% to 70% of net profit after tax (NPAT).
The fund manager said that it remained "confident" in the outlook for Ridley Corporation and its CEO Quinton Hildebrand who, in WAM's view, has "executed strongly" to date by divesting unprofitable business units and structurally lowering costs, helping organic growth.
It must be noted that WAM recently sold shares on 19 July 2022, but it has been regularly buying (and selling) shares of Ridley during 2022.
Close The Loop Inc (ASX: CLG)
This ASX small-cap share is described as an end-to-end solutions provider from design and manufacturing through to the collection and recycling of waste products across a variety of markets.
WAM noted that the company provided a trading update ahead of its first investor day and presentation. In that trading update, the company upgraded its FY22 revenue forecast to $82 million and increased its earnings before interest, tax, depreciation and amortisation (EBITDA) forecast to $13.6 million.
What caused this upgrade? The fund manager explained it was due to "strong organic growth across all divisions", particularly in the US and Europe packaging and recycling segment.
WAM pointed out that there is a "strong outlook" for the small-cap ASX share, with an annual revenue run-rate of over $100 million. Growth is expected to be further increased through add-on acquisitions. Non-binding term sheets had been signed for three acquisitions. The company recently announced the acquisition of Alliance Paper.
The fund manager said Close The Loop is "under-researched with no broker coverage and over time, this provides a catalyst to drive a further share price re-rating."
