Wilson Asset Management thinks these 2 small cap ASX shares are a buy

Top fund manager Wilson Asset Management thinks that the two ASX small cap ASX shares are a buy, including Serko Ltd (ASX:SKO).

| More on:
Young male investor with a pink piggy bank and pile of gold coins

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Respected fund manager Wilson Asset Management (WAM) has recently identified two small cap ASX shares that it owns in its portfolio.

WAM operates several listed investment companies (LICs). Some focus on larger companies like WAM Leaders Ltd (ASX: WLE) and WAM Capital Limited (ASX: WAM).

There's also one called WAM Microcap Limited (ASX: WMI) which targets small cap ASX shares with a market capitalisation under $300 million at the time of acquisition.

WAM says WAM Microcap targets the most exciting undervalued growth opportunities in the Australian microcap market.

The WAM Microcap portfolio has delivered gross returns (that's before fees, expenses and taxes) of 21.3% per annum since inception in June 2017, which is superior to the S&P/ASX Small Ordinaries Accumulation Index average return of 7.2%.

These are the two small cap ASX shares that WAM outlined in its most recent monthly update:

Damstra Holdings Ltd (ASX: DTC)

WAM explained that Damstra provides integrated workplace management solutions to help companies with safety and regulatory compliance.

The fund manager said in October the small cap ASX share reported record first quarter revenue of $5.2 million, representing 34% growth on the prior corresponding period. WAM also said the company successfully acquired Vault Intelligence Limited, a workforce performance and protection technology company, a strategic step that allow Damstra to scale, diversify and fast track global growth.

Damstra also reported that its cash receipts was $7.1 million for the quarter, up 61% compared to the prior corresponding period. Operating cash flow was $2.4 million, which was up 25% compared to last year. The company finished with a cash balance of $9.6 million.

The small cap ASX share's gross margin was 72%, up from 69% in FY20. Damstra said that this showed strong operating leverage.

User numbers increased to 418,000 with 47 clients added during the quarter. Its client churn was less than 0.5% in the first quarter of FY21.

The Damstra share price has risen by 280% since the market bottom on 23 March 2020.

Serko Ltd (ASX: SKO)

WAM said that Serko is a New Zealand based online travel booking and expense management company for the business travel market.

The small cap ASX share has benefitted from an uplift in travel and the state by state reopening of borders between New Zealand and Australia. The company announced a capital raising in October, with an oversubscribed share purchase plan and placement raising a combined NZ$67.5 million at NZ$4.55 per share. WAM said that Serko is expected to report its result this week.

In the capital raising update, Serko said that the lifting of travel restrictions in New Zealand resulted in transactions rebounding to approximately 70% of pre-COVID transaction volumes (measured against equivalent days in 2019) following the adoption of alert level 1 in mid-June, before declining again when further travel restrictions were imposed in August 2020.

Seko revealed that travel transaction volumes are currently running at approximately 30% of last year's corresponding period volumes for Australasia as at 20 September 2020.

In North America, Serko invested heavily in its platform for expansion into the region.

Current booking volumes are low, however, management believe that this market provides a significant growth opportunity over time and has continued to expand its reseller base in this market.

Serko said that it has added four new TMC resellers since 31 March 2020, bringing the total to nine resellers, and is in the process of activating these partners.

The small cap ASX share is in advanced stages of negotiation for a large direct contract with a US fortune 500 company.

Tristan Harrison owns shares of WAM MICRO FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Damstra Holdings Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Serko Ltd. The Motley Fool Australia has recommended Damstra Holdings Ltd and Serko Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Growth Shares

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Growth Shares

2 of the best ASX growth shares money can buy

Bell Potter rates these growth shares very highly. But why?

Read more »

A smiling travel agent sitting at her desk working for Corporate Travel Management
Growth Shares

My 2 best ASX growth shares to buy in November

Growth continues to catch the market's attention.

Read more »

a man looks down at his phone with a look of happy surprise on his face as though he is thrilled with good news.
Growth Shares

Buy these ASX growth shares for 16% to 25% returns

Analysts are saying good things about these buy-rated shares.

Read more »

two children squat down in the dirt with gardening tools and a watering can wearing denim overalls and smiling very sweetly.
Growth Shares

How to maximise $10,000 by investing in 2 ASX growth shares

Here are my best growth ideas on the ASX right now.

Read more »

A man sees some good news on his phone and gives a little cheer.
Growth Shares

These ASX 200 growth shares could rise 50% to 60%

Big returns could be on offer from these growing companies according to analysts.

Read more »

Sports fans looking at smart phone representing surging pointsbet share price
Growth Shares

Up 111% in six months, this soaring ASX share is backed to keep rising

One fund manager thinks this ASX growth share can continue its phoenix performance.

Read more »

a happy investor with a wide smile points to a graph that shows an upward trending share price
Growth Shares

These ASX growth shares are being tipped to smash the market

Returns of 14% to 68% could be on the cards for buyers of these shares according to brokers.

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Growth Shares

These ASX 200 growth shares could rise 50% to 70%

Analysts are predicting these stocks to rise materially from current levels.

Read more »