The fund manager Wilson Asset Management (WAM) has recently identified two top small cap ASX shares that it owns in its portfolio that could be ideas.
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 25% per annum since inception in June 2017, which is superior to the S&P/ASX Small Ordinaries Accumulation Index average return of 12.2%.
These are the two small cap ASX shares that WAM outlined in its most recent monthly update:
Aussie Broadband Ltd (ASX: ABB)
WAM describes Aussie Broadband as Australia's fifth largest NBN internet provider, supplying internet, phone, network and entertainment solutions to over 300,000 residential and business customers.
One of the things that the fund manager referred to was how the telecommunications company performed in FY21. The small cap ASX share reported revenue of $350.3 million, representing growth of 84% compared to FY20. Earnings before interest, tax, depreciation and amortisation (EBITDA) was $19.1 million, which was an increase of 433%.
The fund manager also noted that the Aussie Broadband share price hit a record high after completing a $114 million institutional capital raising and finalising a 10-year deal with VicTrack to access their respective fibre networks. If readers haven't heard of VicTrack before, it's a Victorian Government owned business enterprise that operates the state's fibre assets.
WAM likes that the company has delivered customer growth in both its business and residential segments despite COVID-19 impacts. The company's outlook remains "positive".
The small cap ASX share was one of WAM Microcap's biggest 20 positions at the end of September 2021.
Viva Leisure Ltd (ASX: VVA)
The other business that WAM talked about was Viva Leisure. This company operates gyms, meaning it comes from the health and leisure industry.
Viva Leisure operates 118 health clubs within the ACT, NSW, Victoria and Queensland, with the majority operating under the Club Lime brand offering.
The fund manager noted that the small cap ASX share recently completed a $11.7 million placement which will be used to strengthen the balance sheet and fund its acquisitions that it has planned.
Viva Leisure is going to benefit from the reopening trade, according to WAM, with its NSW and ACT operations expected to be open very soon (if not already). With a "re-stocked" balance sheet, the fund manager believes that Viva Leisure is well positioned to return to strong organic growth and recommence its rollout and acquisition strategy.
