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Key points
- Analysts have identified two leading ASX 200 shares that look cheap
- Fund manager Pendal is losing FUM, but brokers see positives and good value
- Seven Group's industrial businesses are showing good progress with expectations of ongoing opportunities for growth
Analysts have been on the search for undervalued S&P/ASX 200 Index (ASX: XJO) shares.
Share prices are always changing, but sometimes a business update or a drop in the share price can make it into an opportunity.
When a business is well-liked by a number of analysts, it might suggest that it's an opportunity. But, there's also a chance that all of those analysts end up being wrong at the same time.
With that in mind, these two have been rated as leading opportunities:
Pendal Group Ltd (ASX: PDL)
Pendal is one of the larger fund managers on the ASX. It is rated as a buy by at least six brokers, including Morgan Stanley. This broker has a price target of $8.80 on the business, suggesting a possible upside of around 70% over the next 12 months if the broker ends up being right.
The latest influence on the broker's thoughts was the latest quarterly update. Whilst Pendal continues to suffer outflows, Morgan Stanley sees the ESG segment as a useful long-term positive.
Pendal had $135.7 billion of funds under management (FUM) at 31 December 2021. It suffered a total net outflows of $6.8 billion across the business, with $5.5 billion of outflows from the Europe, UK and Asia division. Investors already knew about two notable redemptions by UK institutional clients which was announced at the AGM in December.
The ASX 200 share's management is disappointed with the net flow performance, but it's responding with a "clear set of actions".
It's investing in distribution in key target markets, Pendal is working closely with fund managers to strengthen investment performance and has launched new impact and thematic products that are quickly gaining traction.
On Morgan Stanley's numbers, it is currently valued at 10x FY22's estimated earnings. The broker is expecting a grossed-up dividend yield of 12.75%.
Seven Group Holdings Ltd (ASX: SVW)
Seven Group is currently rated as a buy by at least four brokers, including UBS. That broker has a $27.15 price target on the business.
This business has investments and operations in a few different areas. In industrial services, WesTrac is the sole authorised Caterpillar dealer in Western Australia, New South Wales and the Australian Capital Territory in Australia. It also owns Coates Hire, Australia's largest equipment hire business and AllightSykes, a supplier of lighting towers, generators and pumps.
The ASX 200 share owns around 70% of Boral Limited (ASX: BLD). Seven is looking to expand its presence in oil and gas projects in Australia and the United States. Seven also has a 30% shareholding in Beach Energy Ltd (ASX: BPT).
Seven Group also owns almost 40% of Seven West Media Ltd (ASX: SWM).
UBS thinks that the ongoing economic recovery of Australia will be helpful for the business.
In a recent trading update, Seven Group said that WesTrac was benefiting from continuing strong demand, with good mining demand in WA and NSW. Construction demand remains strong.
Seven West Media is benefiting from advertising spending and video on demand growth. It is targeting annual savings of between $15 million to $20 million. It's also improving its balance sheet by improving its net debt position.
Seven Group also thinks that Coates is well positioned for new opportunities and growth.
On UBS numbers, the Seven Group share price is valued at 13x FY22's estimated earnings.
