Fund manager Wilson Asset Management (WAM) has identified two top small-cap ASX shares in one of the portfolios it manages that could be investment ideas.
WAM operates several listed investment companies (LICs). Some, such as WAM Leaders Ltd (ASX: WLE) and WAM Capital Limited (ASX: WAM), focus on larger companies.
There's also one called WAM Microcap Limited (ASX: WMI) which focuses on small-cap ASX shares with a market capitalisation of under $300 million at the time of acquisition.
WAM says WAM Microcap targets "the most exciting undervalued growth opportunities in the Australian microcap market".
These are the two small-cap ASX shares the fund manager outlines in its recent monthly update.
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Qualitas Ltd (ASX: QAL)
WAM described Qualitas as one of Australia's leading alternative real estate investment managers.
It has $5.5 billion of capital committed across real estate private credit, opportunistic real estate private equity, income-producing commercial real estate, and build-to-rent residential.
WAM noted that Qualitas announced the establishment of a $50 million warehouse facility for its listed Qualitas Real Estate Income Fund (ASX: QRI). The WAM investment team believes it will be "immediately earnings accretive" for Qualitas and allow the listed income fund to deploy its capital more effectively.
The business released a "strong trading update" at its AGM and WAM noted that capital deployed in FY23 to date was more than $1 billion. That's more than 50% of the total capital deployed in FY22 in just four months.
WAM also pointed out that Qualitas reaffirmed its FY23 earnings guidance of $30 million to $33 million of net profit before tax.
It pointed out that the small-cap ASX share is "significantly exposed" to the senior commercial real estate loan business, with the funds structured in a way that provides "positive earnings leverage" to a higher interest rate environment.
The fund manager concluded:
Coupled with the company's stronger rate of capital deployment to date, Qualitas appears well positioned to upgrade its earnings guidance at the upcoming 2023 first half result in February. Its balance sheet is also strong with a significant net cash position, providing optionality to deploy further capital into existing and new strategies or undertake earnings-accretive acquisitions. Overall, we view Qualitas as attractively valued given the positive growth outlook on offer.
MMA Offshore Ltd (ASX: MRM)
The other small-cap ASX share that WAM mentioned was MMA Offshore which provides supply vessels and a comprehensive suite of marine and subsea services to the offshore energy sector as well as government, defence, and wider maritime industries.
The fund manager said that last month, MMA Offshore announced that it expects to deliver earnings before interest, tax, depreciation and amortisation (EBITDA) in the range of $30 million to $32 million in the first half of FY23. This would represent growth of 70% compared to the second half of FY22.
WAM explained that the good earnings guidance happened because of stronger-than-expected market conditions during the first half of FY23, driven by "increased activity" in the company's traditional oil and gas markets and offshore wind developments in Southeast Asia.
Here are WAM's final thoughts on the small ASX share:
We continue to believe that the recovery in oil and gas activity following disruptions caused by the coronavirus lockdowns, combined with the growth in offshore wind developments, presents a unique opportunity for MMA Offshore to secure meaningful contracts moving forward.
