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 23.5% per annum since inception in June 2017, which is superior to the S&P/ASX Small Ordinaries Accumulation Index average return of 10%.
These are the two small cap ASX shares that WAM outlined in its most recent monthly update:
Evolve Education Group Ltd (ASX: EVO)
According to the ASX, Evolve Education has a market capitalisation of $185 million.
WAM explained that Evolve Education operates 120 childcare centres for pre-schoolers across New Zealand and Australia.
In November, the small cap ASX share announced its interim result for the six months ending 30 September 2020 showing net profit after tax (NPAT) of NZ$6.2 million, which was up 533.2% compared to the prior corresponding period.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) was within the guidance range of NZ$14.4 million to NZ$14.8 million.
The fund manager said that the childcare industry has been significantly impacted throughout the coronavirus pandemic, and WAM believe the government will continue to support the industry as individuals return to the office and the expected need for childcare services increases.
WAM also sees the ability for the small cap ASX share to make accretive acquisitions with its strong balance sheet. Evolve was one of WAM Microcap's biggest 20 positions at the end of November 2020.
Mach7 Technologies Ltd (ASX: M7T)
According to the ASX, Mach7 has a market capitalisation of $291 million.
The fund manager explained that this company develops data management solutions for healthcare providers to own, access and share patient data.
In the first quarter of FY21, Mach7 said that it generated $3.3 million (total contract value) of new sales orders for the quarter and recurring revenue grew by $0.9 million per annum. Nine new customers were added with two customers going live on the Mach7 platform. During the quarter, Boston Scientific Corporation licensed the Mach7 enterprise imaging platform to implement and utilise the platform, and plans to extend and enhance their imaging and research capabilities across the enterprise.
Early on in the quarter, Mach7 acquired Client Outlook and it had already achieved $1.5 million of cost synergies at the time of the update.
Mach7 has been investing in marketing after the acquisition and its eUnity viewing and integration platform, to raise global brand awareness and loyalty.
In November, Mach7 signed a seven-year contract with Trinity Health, the fifth largest integrated delivery network in the United States, valued at $5.3 million. The contract will see Mach7's eUnity enterprise viewer, a diagnostic imaging platform, installed in 92 hospitals across 22 states.
WAM is positive about Mach7's opportunity to expand its operations in coronavirus impacted regions such as the United States.
