The fund manager Contact Asset Management likes to pick out ASX shares that can provide a mixture of dividend income and capital growth.
There are plenty of large ASX blue chips in its funds, but the Contact investment team also think there are opportunities to be found lower down the market capitalisation list.
The idea is to invest in tomorrow's leaders within the mid and small-cap ASX shares space. The Contact Australian Ex-50 Fund aims to deliver net returns of at least 10% per annum.
Redox Pty Ltd (ASX: RDX)
Contact described Redox, which only listed last month, as a "traditional industrials company". It is a supplier of chemicals, ingredients, and raw materials to a wide variety of industries such as food and drinks, healthcare, animal healthcare, crop production and protection, detergents, and water treatment.
It's managed by the founding Coneliano family, which still owns 46% of the business.
The fund manager likes that Redox generates a high proportion of recurring revenue, shows strong returns on capital, and the ASX share has "significant growth opportunities via market share gains".
Contact is expecting, over time, Redox will generate earnings per share (EPS) growth and offer a "compelling dividend yield". The initial public offering (IPO) was valued at a price/earnings (P/E) ratio of 14 times, which the fund manager thought was attractive.
Alliance Aviation Services Ltd (ASX: AQZ)
Alliance is an owner and operator of 80 to 114-seat jet aircraft, which it usually deploys to contracted aviation services. These include fly-in, fly-out (FIFO) contracts with major mines and 'wet lease' flying, contracted to major Australian airlines.
The ASX share also provides short-term charter services to customers on an ad hoc basis. Those sorts of customers include sporting teams, corporates, government agencies, tourism groups, and mining customers.
Contact noted Alliance Aviation recently increased its profit outlook. This was higher than the market was expecting, with profit around 15% better than expected. It also noted the company's acquisition of four additional E190 aircraft to satisfy increasing demand.
The profit upgrade also indicated increased wet lease flight hours from its additional capacity and higher use with the ASX share investing in expanding its fleet during the last few years.
Contact thinks the business is "well-positioned" to drive solid earnings growth.
There's also interest from Qantas Airways Limited (ASX: QAN) in a possible takeover. The ACCC has cited competition concerns, but the fund manager thinks the Alliance Aviation share price could materially increase if the deal progressed. This is because the bid price is $4.75, compared to the current Alliance Aviation share price of $3.29.
GQG Partners Inc (ASX: GQG)
GQG was the sixth-largest position in the fund's portfolio at the end of July 2023.
Contact notes GQG is doing well with both its funds under management (FUM) growth and investment performance.
Unlike many others in the funds management sector, Contact pointed out the ASX share continues to generate "solid net inflows" but it's "being priced by the market as a business in decline". Contact is positive on the outlook for GQG and it's backing the founder-led management team.
