It's always interesting to see what some fund managers are looking at on the ASX share market. Things are particularly volatile at the moment as investors come to terms with high inflation and increased interest rates.
Ophir Asset Management finds ASX shares that look like they can significantly grow earnings over the long term. But, this investment manager likes to look across a range of industries to find opportunities.
The investment team recently went through some of its holdings within the Ophir High Conviction Fund (ASX: OPH) and discussed what it likes about them, with a particular focus on the first ASX share.
AUB Group Ltd (ASX: AUB)
This is a business that provides insurance broking, underwriting and risk services in Australasia. Ophir noted that its recent FY22 result was at the top end of market expectations and guidance for next year was "better than expectations".
Ophir said that a unique element of the business is that it partners with local management teams of acquired businesses and adopts an owner-driven model to try to deliver the best outcomes for clients. It services around one million clients across 500 locations.
One of the things the fund manager likes is the resilience of the ASX share's earnings because small and medium enterprises are "unlikely to cancel their insurance cover in market downturns as it is a core pillar of any business, much like accounting". The fund manager pointed out that AUB performed well during the GFC.
Ophir said that not only is it resilient, but it has grown earnings strongly. Some peers have grown at a similar rate. These businesses can use both organic growth and acquisitions to grow.
It thinks it can grow its broker and agency margins, which lag competitors. The fund manager pointed out there is a valuation gap compared to peers. Historically, its price/earnings (P/E) ratio has traded in line with Steadfast Group Ltd (ASX: SDF) and PSC Insurance Group Ltd (ASX: PSI). A gap has formed, which Ophir suggested could be due to the acquisition of Tysers.
The fund manager suggests there is more upside than expectations for the ASX share because management has been "conservative" with guidance and synergies.
Mineral Resources Limited (ASX: MIN)
Mineral Resources operates as a mining services and processing company in Australia, China and Singapore. It is also a producer of iron ore and lithium. This is one of the few resource businesses that Ophir is invested in.
The business' lithium result was "very strong" in FY22, according to the fund manager. The company has also announced plans for its Ashburton projection which "should increase the production rate of iron ore whilst also materially reducing average costs".
Life360 Inc (ASX: 360)
Life360 is an ASX tech share that offers a service that aims to ensure the safety of family members.
Ophir said that it delivered a "strong" recurring earnings beat in its recent result and that a price increase was announced for its membership base.
The investment team said they believe the business will reach breakeven in the near term.
In that update, Life360 said:
We expect Life360 to be on a trajectory to consistently positive adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) and operating cash flow by late calendar year (CY) 2023, such that we record positive adjusted EBITDA and operating cash flow for CY24. This trajectory could be further assisted by the positive impact of potential future price changes.
