As the dust settles on a crucial reporting season, professional investors are gathering their thoughts about which ASX shares they will be supporting going forward.
The analysts at QVG Opportunities Fund relish this time.
"It is a chance for us to separate the narrative from the numbers," they stated in a memo to clients.
"Of course, reported statutory earnings numbers only tell part of the story of a company. But those numbers can be very helpful to us in separating the narrative which drives a [company's] share price with the economic reality of the business."
This particular results season wasn't as disastrous as it could have been.
"August's reporting season was a blast," read the memo.
"Share prices were typically volatile on and after their results which offers opportunity for those who know what they own. Earnings results were generally 'not as bad as feared'."
However, the QVG team is constantly alarmed by the large presence of unprofitable businesses floating around on the bourse.
"It is shocking to us the number of ASX-listed companies that don't make money, don't turn their 'profits' into cash or don't earn their cost of capital.
"Reporting season gives us a snapshot of this reality."
Let's check out two stocks that they particularly liked coming out of the August reports:
'Strong organic and inorganic growth'
Johns Lyng Group Ltd (ASX: JLG) is already the QVG Opportunities Fund's biggest holding, but the company continues to impress the analysts.
"The result showed strong organic and inorganic growth," read the memo.
"There was some commentary around soft margins in their US business but our understanding [is] this margin compression reflects very aggressive hiring — a lead indicator of potential work."
The numbers don't lie, as far as the QVG team is concerned.
"The result itself showed clean accounts and very strong cash flow with plenty of firepower for future acquisitions."
Plenty of other professionals are also bullish on Johns Lyng.
According to CMC Markets, eight out of 10 analysts currently rate the insurance repairer as a buy.
The Johns Lyng share price is now 9.5% up on where it started the year.
Small Aussie battler competing against giants
Aussie Broadband Ltd (ASX: ABB) shares are absolutely humming right now, flying more than 30% higher than on 19 July.
"Aussie Broadband beat consensus earnings expectations, generated a lot of cash and gave guidance that bracketed consensus."
Telecommunications, in particular internet connections, is an extremely competitive industry. Smaller players have to attract clientele against several giant players with deep pockets.
The QVG team has faith that Aussie Broadband can pull it off.
"We continue to believe Aussie is becoming a better business via their owned infrastructure and E&G division — although we concede growing Business, Enterprise and Government is a slow burn."
Three out of six analysts currently surveyed on CMC Markets rate Aussie Broadband as a strong buy.
