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 Leaders Ltd (ASX: WLE).
There's also one called WAM Research Limited (ASX: WAX) which looks at smaller businesses on the ASX.
WAM says WAM Research invests in the most compelling undervalued growth opportunities in the Australian market.
The WAM Research portfolio has delivered gross returns (that's before fees, expenses and taxes) of 15.1% per annum since the strategy changed in July 2010, which is superior to the S&P/ASX All Ordinaries Accumulation Index return of 7.8% per annum.
These are the two ASX shares that WAM outlined in its most recent monthly update:
Viva Leisure Ltd (ASX: VVA)
Viva Leisure is a small cap ASX share with a market capitalisation of $217 million.
WAM Research explained that Viva Leisure operates 86 company owned fitness clubs throughout Australia, together with the recently acquired Plus Fitness group which is a franchise model of 200 fitness clubs.
In October, Viva Leisure announced a milestone of over 100,000 members, with clubs in the Australian Capital Territory (ACT), New South Wales (NSW) and Queensland all reporting net growth and the largest number of new member signups in history during September.
Viva Leisure also acquired the FitHQ business in Campbelltown, NSW, adding 1,500 new members.
Last week it announced a $30 million capital raising to pursue more growth opportunities. Viva Leisure new has over 103,000 members and, when including the 175,000 Plus Fitness network members, it now has around 278,000 members.
The company has an estimated revenue run rate of around $80.4 million based on October 2020.
Management said that it has a robust and deep pipeline of acquisition opportunities including small health club groups. It's in advanced discussions with multiple Plus Fitness franchisees to purchase locations.
It has a target of over 400 corporate owned locations by 2025.
Bapcor Ltd (ASX: BAP)
Bapcor is the biggest Australasian auto parts business in Australia and New Zealand with a variety of automotive businesses targeting different parts of the market.
It has its trade division, which includes Burson Auto Parts. The ASX share has a retail division which includes Autobarn. Bapcor has a service business which owns Midas and ABS. The auto parts business owns various specialist wholesale businesses and it also added a commercial truck parts group too. Finally, it has a small but growing Burson network in Thailand.
The WAM Research investment team pointed out that in the quarter for the three months to 30 September 2020 it grew revenue by 27% compared to the prior corresponding period, with retail revenue rising 47% and specialist wholesale revenue going up 45%.
WAM Research said that Bapcor has benefited from an increase in domestic travel, reduced usage of public transport and increased second-hand car sales. The fundie said that Bapcor has a strong balance sheet and believes it's well placed to make earnings accretive acquisitions.
In the 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."
According to Commsec, at the current Bapcor share price, it's valued at 17x FY23's estimated earnings.
