Fund manager Wilson Asset Management (WAM) has identified two top small-cap ASX shares in one of the portfolios it manages that could be investment ideas.
WAM operates several listed investment companies (LICs). Some, like WAM Leaders Ltd (ASX: WLE) and WAM Capital Limited (ASX: WAM), focus on larger companies.
There's also one called WAM Microcap Ltd (ASX: WMI), which focuses on small-cap ASX shares with a market capitalisation under $300 million at the time of 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 outlines in its recent monthly update.
iCollege Ltd (ASX: ICT)
WAM described this business as a provider of accredited and non-accredited courses and services across Australia. It also operates an international recruitment agency. The iCollege share price is up 60% since 24 August 2022.
It was noted that the COVID-19 period has been challenging, but the reopening of Australian borders and a range of government initiatives aimed at encouraging international students to return has led to iCollege seeing a "surge" in demand from overseas students.
The fund manager also said the small-cap ASX share is strongly positioned to benefit from this trend with the company revealing in its FY22 result that the number of English language students has exceeded pre-COVID levels. New student offers and enrolments at Go Study are increasing on a month-over-month basis.
The intake of international bachelor degree students is rising steeply and will "contribute to strong revenue growth into FY24 and onwards".
Concluding its positive thoughts, WAM explained:
We believe the market is underestimating the company's operating leverage associated with filling incremental classroom capacity, underpinning earnings upgrades. The strong balance sheet also provides opportunity to deploy capital into earnings accretive acquisitions over the medium-term.
CogState Limited (ASX: CGS)
The other small-cap ASX share mentioned, CogState, was described as a leading technology company optimising brain health assessments to advance medicine development and enable earlier clinical insights in healthcare. The CogState share price is up 30% since 27 September 2022.
Last month, its global commercial partner Eisai reported a successful phase three trial result for its new Alzheimer's disease drug, which met both its primary and secondary endpoints.
WAM noted that the drug reduced clinical cognitive decline by 27% compared to a placebo in a study involving 1,795 participants with early Alzheimer's disease.
Eisai will continue to seek approval for the drug in the US, Japan, and Europe.
The fund manager said the adoption of Cogstate's technologies at scale has been predicated on a commercialised drug in the market to screen for potential patients suitable for treatment.
Assuming the drug is approved, WAM said:
We anticipate this to materialise in the 2023 calendar year, driving upgrades to revenue and earnings. Additional opportunities exist with highly-anticipated read-outs from two other pivotal phase three Alzheimer's drugs, providing near-term catalysts for the company.
