The fund manager Contact Asset Management has outlined two S&P/ASX 200 Index (ASX: XJO) shares that could be great value investments and could outperform.
With its Contact Australian Ex-50 Fund, it aims to find businesses that can deliver a mix of growth and income by looking at businesses that are quality Australian companies outside of the S&P/ASX 50 Index (ASX: XFL).
The strategy seeks to invest in founder-led businesses and tomorrow's leaders within the universe of mid and small-cap ASX shares.
The fund manager said that reporting season is an interesting time for stock pickers like Contact Asset Management. It saw consistent themes from company results in February: tight labour supply, rising interest expense, a cautious consumer and ongoing inflation.
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Smartgroup Corporation Ltd (ASX: SIQ)
This ASX 200 share offers salary packaging, fleet management and a range of other services to organisations across Australia. It's committed to delivering an "exceptional experience".
Contact pointed out that over the prior two years, Smartgroup's operating conditions were challenging, but the latest report showed that operating momentum is "improving".
The fund manager said that novated leasing leads have been "buoyant", while supply chain pressures on vehicle availability are "only just beginning to abate."
As the environment normalises, the fund manager is expecting the ASX 200 share's sales to improve as orders are converted. Costs are also expected to drop, as redundant service expenses are removed at a faster-than-expected pace.
Contact said that growth in electric vehicles is an "unappreciated" additional boost to activity, as well as benefits from the recent investments in digital platforms.
The fund manager believes that Smartgroup has a "strong" balance sheet with near zero debt forecast.
Contact pointed out that the better-than-expected dividend highlights management's confidence in the outlook.
In the fund manager's opinion, a forward-looking price/earnings (P/E) ratio of between 11 to 12 suggests "excellent value."
Flight Centre Travel Group Ltd (ASX: FLT)
Flight Centre is one of the largest ASX travel shares. It offers both leisure and business travel for travellers.
Contact revealed that it added Flight Centre shares to the portfolio recently.
It pointed out that the corporate business is seeing emerging strong momentum, which now accounts for "over 50% of earnings."
The fund manager also noted that leisure is also recovering, yet "still has upside with Australian arrivals at around 70% of pre-COVID levels."
Contact also thinks that the resumption of Chinese tourism "will help drive growth."
On top of that, the fund manager said that the ASX 200 share's balance sheet is in a "sound position" after the recent capital raising.
Contact said that it expects the founder-led business to return to dividend payments in the next financial year.
