The leading investors from Wilson Asset Management (WAM) have shared two compelling S&P/ASX 200 Index (ASX: XJO) investment prospects on their radar.
WAM operates several listed investment companies (LICs). Some, like WAM Leaders Ltd (ASX: WLE), focus on larger companies.
Meanwhile, WAM Capital Limited (ASX: WAM) targets "the most compelling undervalued growth opportunities in the Australian market".
But does WAM have a claim of stock-picking pedigree? The WAM Capital portfolio has delivered an investment return of 14.7% per annum since its inception in August 1999. That's before fees, expenses, and taxes. This gross return outperformed the All Ordinaries Total Accumulation Index (ASX: XAOA) return of 7.9% per annum over the same timeframe.
With that in mind, here are the two ASX 200 shares WAM Capital has outlined in its recent monthly update.
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Premier Investments Limited (ASX: PMV)
WAM describes Premier Investments as a business that owns and operates a group of retail, consumer products, and wholesale businesses.
Last month, the business announced its FY22 result, achieving a 4.9% year-over-year increase in statutory net profit after tax (NPAT) to $285.2 million.
The business also declared a fully franked final dividend of 54 cents per share as well as a fully franked special dividend of 25 cents per share.
The ASX 200 share managed to generate $1.5 billion of retail sales and record retail earnings before interest and tax (EBIT) of $352.5 million. This is despite suffering from "significant" operational challenges including lockdowns, global supply chain complexities, and disruptions caused by the Omicron COVID variant.
WAM was also pleased by the company's decision to announce a 12-month on-market share buyback of up to $50 million. This will allow the company to deliver a boost to earnings per share (EPS) and increase total shareholder returns.
However, the fund manager noted that the retail sector could see some volatility due to rising interest rates and a declining wealth effect in the short term.
So, why is WAM positive on the ASX 200 share? The fund manager said:
We believe Premier Investments is well-positioned given the opportunity for ongoing global expansion of Smiggle and potentially Peter Alexander – market-leading domestic brands with leverage to the re-opening theme along with a very strong balance sheet and management team that is positioned to capitalise on any opportunities that may present.
Event Hospitality and Entertainment Ltd (ASX: EVT)
This cinema, hotels, leisure assets, and property ASX 200 share is WAM's other pick.
The Event Hospitality and Entertainment share price fell during September, like the rest of the ASX share market.
However, the fund manager believes the business is "well-positioned to benefit from the shift in consumer spend from goods to experiences in the near-term, underpinned by an improving theatrical content slate for cinemas, progressive recovery in international tourism for the hotels business and a solid winter 2022 result at Thredbo."
On top of that, the investment team believes that its assets are being undervalued as well. It said:
We believe Event Hospitality and Entertainment assets remain undervalued and we estimate that the operating businesses are trading on approximately 4x enterprise value to earnings before interest, tax, depreciation and amortisation (EBITDA) at current share price levels, a significant discount to our intrinsic valuation.
