Fund manager L1 Capital is always on the lookout for ASX shares it thinks are undervalued opportunities. It recently called out two S&P/ASX 200 Index (ASX: XJO) shares in the portfolio that look undervalued.
Typically, the fund manager is looking for companies that have relatively low price/earnings (P/E) ratios, an appealing free cash flow yield and good prospects for earnings growth.
The two ASX shares that L1 has highlighted are appealing investments, even though they're not the most well-known companies on the ASX.
Let's take a look at those opportunities.
Imdex Ltd (ASX: IMD)
Imdex describes itself as a global mining tech leader, helping drillers and resource businesses "safely and quickly locate, define and mine orebodies with precision".
L1 noted that the ASX 200 share rose 12% in July as external market conditions "continued to improve". The fund manager pointed out that small miner capital raising activity, a key leading indicator for exploration spending, increased 65% year-over-year in the first half of 2025, reaching its highest levels since 2021.
The investment team believe this should provide a "strong positive tailwind" as exploration activity increases after a period of weak underlying market conditions.
L1 then explained why the outlook still seems positive for the business:
Imdex continues to execute well, recently reporting increased market share and resilient margins due to its leading product offering and strong cost management. We continue to see positive tailwinds for the business, above and beyond the improving market environment, underpinned by further market share gains, margin expansion and digital penetration, which are all within the company's control.
Aurizon Holdings Ltd (ASX: AZJ)
Aurizon is a key business in Australia's economy because of its infrastructure, which enable businesses to move commodities around the country.
L1 noted the company's trading update in late June and the announcement of a significant contract win for the 'bulks' segment. The fund manager thought that the market had become overly bearish on the operating environment.
The contract win will see Aurizon become the rail-hauler for BHP Group Ltd's (ASX: BHP) Olympic Dam operations, along with other adjacent BHP mines from October. L1 said this is a "long-term growth contract" with a high-quality counterparty that will "will bring additional scale to its bulk central operations and highlights Aurizon's strong competitive positioning in that corridor."
Highlighting why the fund manager sees the ASX 200 share as an opportunity, L1 wrote:
We continue to see Aurizon as materially undervalued. The regulated Network business represents over half of the company's value and remains materially under-appreciated by the market. Aurizon announced a strategic review in February that includes a review of the Network ownership structure, with an outcome of this review expected by year end.
The Coal haulage business is substantive and a strong cash generator for the Group. While the Bulks business has underperformed in recent years, we expect improving cash generation from these assets going forward given opportunities for growth and also containment of expansionary capex that has been a feature in recent years. With strong and growing cash flows from the underlying business, we expect to see continued solid returns to shareholders via dividends and share buybacks.
