Wilson Asset Management thinks these 2 small cap ASX shares are a buy

Fund manager Wilson Asset Management (WAM) thinks that the 2 small cap ASX shares in this article are a buy, like National Tyre & Wheel Ltd (ASX:NTD).

| More on:
ASX Small Caps

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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 23.8% per annum since inception in June 2017, which is superior to the S&P/ASX Small Ordinaries Accumulation Index average return of 10.3%.

These are the two small cap ASX shares that WAM outlined in its most recent monthly update:

National Tyre & Wheel Ltd (ASX: NTD)

WAM Microcap explained that National Tyre & Wheel operates entities in Australia, New Zealand and South Africa, supplying tyres and wheels to retailers and wholesalers. According to the ASX, National Tyre & Wheel has a market capitalisation of $122 million.

In January, the company announced that all business units were exceeding expectations and increased earnings guidance for its FY21 interim results, with operating earnings before interest, tax, depreciation and amortisation (EBITDA) expected to be between $15 million to $15.5 million, up from $11.5 million to $12.5 million.

After the acquisition of competitor Tyres4U in July, WAM expects the small cap ASX share will deliver substantial synergies over the next few years.

Seven West Media Ltd (ASX: SWM)

The fund manager said that this ASX share is the company that owns the Seven Network, which produces popular television shows such as Home and Away and newspapers such as The West Australian. According to the ASX, Seven West Media has a market capitalisation of $684 million.

WAM Microcap is positive about the company's recent appointment of the CEO, James Warburton.

Mr Warburton has a strategy for the company to improve the ratings and sell non-core assets of the small cap ASX share.

The fund manager said that Seven West Media has also benefited from a cost out program implemented during the onset of the COVID-19 pandemic, which will support earnings given the increase in television advertising expenditure.

Wilson Asset Management is expecting earnings upgrades and divestments to be key catalysts for the company in its half year result.

At the company's annual general meeting (AGM), Seven West Media gave a trading update that said that the market has improved since the August results, but remains volatile. The metro free to air (FTA) market was down 5% year on year for the period from July to October. Over the same period, the broadcaster video on demand (BVOD) market continues to strongly, up 37%, with 7plus capturing share and growing 62% in that period.

The small cap ASX share said that forward bookings suggest Seven's advertising revenue for the first half could be down approximately 5%. However, cost savings (excluding jobkeeper) has more than offset this revenue decline.

At the end of October it had reduced net debt to $425 million with $750 million in drawn facilities and $325 million cash after a "relentless focus" on cashflow.

Motley Fool contributor Tristan Harrison owns shares of WAM MICRO FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Growth Shares

A smiling travel agent sitting at her desk working for Corporate Travel Management
Growth Shares

My 2 best ASX growth shares to buy in November

Growth continues to catch the market's attention.

Read more »

a man looks down at his phone with a look of happy surprise on his face as though he is thrilled with good news.
Growth Shares

Buy these ASX growth shares for 16% to 25% returns

Analysts are saying good things about these buy-rated shares.

Read more »

two children squat down in the dirt with gardening tools and a watering can wearing denim overalls and smiling very sweetly.
Growth Shares

How to maximise $10,000 by investing in 2 ASX growth shares

Here are my best growth ideas on the ASX right now.

Read more »

A man sees some good news on his phone and gives a little cheer.
Growth Shares

These ASX 200 growth shares could rise 50% to 60%

Big returns could be on offer from these growing companies according to analysts.

Read more »

Sports fans looking at smart phone representing surging pointsbet share price
Growth Shares

Up 111% in six months, this soaring ASX share is backed to keep rising

One fund manager thinks this ASX growth share can continue its phoenix performance.

Read more »

a happy investor with a wide smile points to a graph that shows an upward trending share price
Growth Shares

These ASX growth shares are being tipped to smash the market

Returns of 14% to 68% could be on the cards for buyers of these shares according to brokers.

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Growth Shares

These ASX 200 growth shares could rise 50% to 70%

Analysts are predicting these stocks to rise materially from current levels.

Read more »

A young boy sits on his father's shoulders as they flex their muscles at sunrise on a beach
Growth Shares

2 ASX 300 growth shares with 'strong momentum' this fund manager says are buys

These two stocks have plenty of growth potential, according to experts.

Read more »