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, such as WAM Leaders Ltd (ASX: WLE) and WAM Capital Limited (ASX: WAM), focus on larger companies.
There's also one called WAM Microcap Limited (ASX: WMI) which focuses on small-cap ASX shares with a market capitalisation of 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 outlined in its recent monthly update.
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MMA Offshore Ltd (ASX: MRM)
WAM described MMA Offshore as a global provider of marine vessels and services to the offshore energy sectors, government, defence and maritime industries.
Last month, the company reported its result which showed a 16.6% increase in its revenue to $160 million and a 124.5% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) year over year.
The fund manager explained that the positive result was driven by "improved market conditions as well as its non-core asset sales program and cash flow generation which meant MMA Offshore finished the half with one of the strongest balance sheets in its industry."
WAM also said that the small-cap ASX share has additional flexibility with its capital management initiatives. The investment team explained:
We believe the recovery within the oil and gas industries presents a unique opportunity to MMA Offshore to maximise profit returns moving forward.
Ridley Corporation Ltd (ASX: RIC)
The fund manager describes Ridley Corporation as Australia's leading provider of animal nutrition solutions.
Ridley Corporation was another business that reported its result last month, which the WAM investment team called "solid". Ridley achieved revenue growth of 25.4% to $637.9 million, and EBITDA went up by 12.8% to $44.1 million. The result also included "strong" cash flow conversion.
WAM was impressed by the result considering there was the impact of weather on its operations. The investment team said that the result demonstrated "the resiliency of the company's diversified business model."
The fund manager explained:
We remain optimistic on the company's outlook, with earnings growth supported by internal improvement initiatives that will deliver earnings ahead of industry growth rates, and an under-geared balance sheet providing them with optionality to continue capital management initiatives and engage in earnings accretive acquisitions.
