Respected fund manager Wilson Asset Management (WAM) has recently identified two 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 Research Limited (ASX: WAX).
There's also one called WAM Capital Limited (ASX: WAM) which targets "the most compelling undervalued growth opportunities in the Australian market."
The WAM Capital portfolio has delivered investment return of 16.1% per annum since inception in August 1999, before fees, expenses and taxes. This gross return outperformed the S&P/ASX All Ordinaries Accumulation Index return of 7.8% per annum.
These are the two ASX shares that WAM Capital outlined in its most recent monthly update:
Nine Entertainment Co Holdings Ltd (ASX: NEC)
WAM Capital described Nine Entertainment as Australia's largest locally owned media company. The ASX share owns and operates television, video on demand, print, digital and radio assets. Some of its highest-profile assets include streaming service Stan, as well as the news outlets of the Australian Financial Review and the Sydney Morning Herald. It also owns a significant stake of Domain Holdings Australia Ltd (ASX: DHG).
The WAM investment team believes that Nine Entertainment stands to benefit from increased advertising expenditure in the lead up to the Christmas period, as consumer confidence improves following the announcement that lockdown restrictions would be relaxed in Victoria.
By FY24, Nine is focused on achieving a $230 million cost reduction (compared to FY19). The majority of this will come from programming, production and distribution.
It wants 60% of its earnings before interest, tax, depreciation and amortisation (EBITDA) to come from digital businesses, Nine is aiming for more than 35% of its group revenue to come from subscription and around 30% of its revenue to come from video on demand.
The Nine Entertainment share price has risen by 184% since the COVID-19 low on 23 March 2020.
Bapcor Ltd (ASX: BAP)
WAM Capital explained that Bapcor provides vehicle parts, accessories, equipment, service and solutions to the Asia Pacific region. In October, the company announced the September quarter revenue had increased 27% on the prior corresponding period, with retail revenue up 47% and specialist wholesale revenue up 45%.
In that recent trading update, Bapcor CEO Darryl Abotomey spoke of the company's defensive qualities: "The automotive market is a resilient industry and historically has performed strongly in difficult economic circumstances. Recent trading is another example of its resilience assisted by the increase in sales on second hand cars, reduction in use of public and shared transport modes as well as government stimulus."
The WAM investment team said that Bapcor has benefited from an increase in domestic travel, reduced usage of public transport and increased second-hand car sales. WAM Capital said the ASX share has a strong balance sheet and it believes it's well placed to make earnings accretive acquisitions.
Bapcor is expecting to deliver a "strong" first half, however the second half remains unclear, and given the current economic uncertainties and any potential restrictions, it wasn't in a position to provide a forecast of earnings for FY21.
It's going to keep investing in its various businesses, including through information technology, marketing, process and system upgrades and capital investment in facilities to increase its footprint and to drive improved efficiencies. Bapcor said these investments will grow the cost base, but will assist driving profit growth in the future.
The Bapcor share price has risen 121% since the market low of 23 March 2020.
