The fund manager Wilson Asset Management (WAM) has picked out two S&P/ASX 300 Index (ASX: XKO) shares that are expected to grow their profit margins and deliver returns for shareholders.
Some businesses that go through a rough patch find it difficult to get out of it. Both of the ASX 300 shares I'm going to cover have had a difficult time over the past couple of years, but WAM sees a good opportunity with them.
Hence, it could be an opportunistic time to look at these two names:
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Sigma Healthcare Ltd (ASX: SIG)
Sigma Healthcare was described by WAM as a wholesale and distribution business that supports pharmacy networks in Australia.
The fund manager noted that during the month the ASX 300 share was awarded a contract with Chemist Warehouse to supply pharmaceutical benefits scheme medicines and fast-moving consumer goods products for a period of five years from 1 July 2024.
WAM noted that Sigma Healthcare expects the new contract will generate a minimum of $3 billion in revenue in the first full year of the contract and support its medium-term earnings before interest and tax (EBIT) margin guidance of 1.5% to 2.5%. The fund manager then said:
We believe the contract will provide Sigma Healthcare with continued upside moving forward, banded by the issue of Sigma Healthcare shares to Chemist Warehouse that will further align both parties' long-term strategic interests.
Collins Foods Ltd (ASX: CKF)
The fund manager described Collins Foods as a KFC and Taco Bell franchisee in Australia, the Netherlands and Germany.
WAM noted that last month the ASX 300 share announced its FY23 full-year result, which showed a 14.2% increase in revenue from continuing operations to $1.35 billion while underlying net profit after tax (NPAT) dropped 12.1%.
Even though there has been profit margin pressure that hurt the net profit, the Collins Foods share price has gone up over 30% in the last month. WAM pinned this rise on the fact that Collins Foods highlighted the "conviction" in managing its profit margins in the next financial year.
Explaining its positive viewpoint on the fast food business, the fund manager said:
We are pleased to see the management team navigate the current trading environment well, adroitly managing inflationary pressures in a weakening consumer environment, whilst maintaining investment in future growth initiatives. While we expect to see earnings margins bottom in FY24, we remain positive on the outlook for the business and anticipate earnings margins to increase towards historic levels in FY2025.
