There are some ASX shares worth buying and owning according to fund manager Naos Asset Management.
What is Naos Asset Management's investment approach?
Naos is led by chief investment officer (CIO) Sebastian Evans. NAOS Ex-50 Opportunities Company Ltd (ASX: NAC) is one of the listed investment companies (LIC) operated by Naos.
That particular LIC looks at businesses with market capitalisations between $250 million and $6 billion. That's what Naos deems to be a 'mid-cap'.
The fund manager has a number of investment focuses. It looks for businesses that are good value with long term growth potential. With its portfolio, Naos believes it's better to have a quality portfolio rather than numerous holdings. That's why it only holds around 10 positions in each fund, with each ASX share representing a high-conviction position.
Naos invests in the small cap ASX shares and mid caps for the long-term. It considers the performance and the liquidity of its positions whilst ignoring the index. Performance can sometimes be quite variable when compared to the index.
It looks to invest purely in industrial companies whilst also considering the ESG factors (environmental, social and governance).
What are some of the ASX shares that it thinks are opportunities?
In its latest monthly update for 31 October 2020, Naos gave the latest commentary for some of its ASX share positions:
Objective Corporation Limited (ASX: OCL)
According to the ASX, Objective Corporation has a market capitalisation of $1.23 billion.
Naos describes Objective as a founder led enterprise software company providing specialist software for regulated industries such as government, councils and financial services. Objective has mission critical software, built on providing improved governance, service delivery and workflow combined with process efficiency.
In the FY20 result Objective Corporation grew revenue by 13% to $70 million and increased its net profit after tax (NPAT) by 22% to $11 million.
In FY21 Objective Corporation said it's expecting a material lift in revenue and profitability. It's also expecting to increase its market reach and invest further in broadening its offering to every customer.
MNF Group Ltd (ASX: MNF)
According to the ASX, MNF Group has a market capitalisation of almost $400 million.
MNF is described by Naos as a founder led software company, which specialises in proprietary digital network infrastructure for voice communications. The fund manager says that with 'next generation' networks in Australia, New Zealand and Singapore, MNF provides voice carriage and value-added software services to some of the world's largest software companies and wants to expand further in the APAC region.
Naos said that, over the years, the valuation multiple applied to the ASX share has slowly reduced even though, in Naos' view, the earnings of the business has increased in quantum and predictability. The fund manager firmly believes that the key reason for this is due to the increasing complexity of the MNF business which isn't necessary in Naos' eyes, especially because this complexity is due to a number of small business units that contribute to a minority of the earnings. Over the next eight months Naos will be looking to the board of MNF to address this via a divestment or demerger of the two operating divisions. MNF's Singapore network launches commercially in March 2021 and the fund manager will be paying close attention to the types of clients MNF has been able to sign up.
People Infrastructure Ltd (ASX: PPE)
According to the ASX, People Infrastructure has a market capitalisation of $320 million.
Naos describes People Infrastructure as a founder led provider of specialist staffing solutions, mainly to the healthcare and IT industries. The fund manager said growth in the industry is being driven by demand for more flexibility in working hours by both staff and employers. The ASX share has over 3,000 clients including Wesley Mission, Healthscope and NSW Health.
The fund manager will be watching for People Infrastructure to deploy its capital to cement its position as the leading provider in its respective markets, together with increasing the exposure to high growth industries such as home care.
