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). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX).
There's also one called WAM Leaders Ltd (ASX: WLE) which looks at the larger businesses on the ASX.
WAM says WAM Leaders actively invests in the highest quality Australian companies.
The WAM Leaders portfolio has delivered gross returns (that's before fees, expenses and taxes) of 9.9% per annum since inception in May 2016, which is superior to the S&P/ASX 200 Accumulation Index average return of 6.4%.
These are the two ASX shares that WAM outlined in its most recent monthly update:
BlueScope Steel Limited (ASX: BSL)
BlueScope Steel is the third largest manufacturer of painted and coated steel products globally. According to the ASX, BlueScope has a market capitalisation that's getting close to $9 billion.
WAM pointed out that in October, the ASX share announced that it expects first half FY21 earnings before interest and tax (EBIT) of around $340 million, which would be a 30% increase on the prior period.
The fund manager explained: "Australian steel products and the Asia and North America building products are expected to deliver improved results. BlueScope has benefited from monetary and fiscal stimulus globally, which has led to increased infrastructure spend from governments, strong demand for steel domestically and in Asia and the recovery of the US automotive industry, which has led to steel spreads continuing to push higher globally."
Further to that, BlueScope Steel managing director and CEO Mark Vassella commented: "All operating segments are performing well and momentum has continued to build as we approach the end of the first half of FY21. Residential alterations and additions activity, demand for detached new housing, and growth in demand for e-commerce warehouse and logistics facilities are all robust and US automotive industry demand is recovering strongly."
According to Commsec, the BlueScope Steel share price is valued at 10x FY23's estimated earnings.
Challenger Ltd (ASX: CGF)
Challenger is a large investment manager focused on delivering annuity streams to customers, usually retirees. According to the ASX, it has a market capitalisation of close to $4 billion.
The annuity leader recently released its quarterly update for the three months to 30 September 2020. It showed a 4% increase in group assets to $89 billion and a 46% growth in annuity sales on the prior corresponding period. Funds under management (FUM) went up by 5% for the quarter, including $3.6 billion of net inflows. At the time, the company said it has made significant progress deploying the 'life' cash balance into higher yielding investments. Total life net inflows for the quarter were $114 million.
WAM said: "Challenger trades closely to its net tangible asset (NTA) backing and we believe there is significant value, particularly in the funds management business, that is not appreciated by the market or reflected in the underlying NTA."
The ASX share reaffirmed its FY21 normalised net profit before tax guidance range of between $390 million and $440 million. Earnings are expected to be weighted toward the second half of FY21, reflecting the majority of rental abatements supporting life's property tenants recognised in the first half and the progressive development of life's cash and liquids over the year.
According to Commsec, the Challenger share price is valued at 12x FY23's estimated earnings.
