This fund manager is excited by possible takeovers with these 2 ASX small-cap shares

Here's why investors can get excited about these stocks.

| More on:
Two couples having fun racing electric dodgem cars around a track

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Fund manager Wilson Asset Management has identified two ASX small-cap shares in the WAM Microcap Ltd (ASX: WMI) portfolio that may help shareholder returns thanks to takeovers.

The smaller end of the ASX share market can be the most exciting because of the amount of merger and acquisition activity that goes on there, as well as some businesses being able to scale up quickly because they're starting from a smaller base than larger ones.

These are the two stocks that have been picked out.

MMA Offshore Ltd (ASX: MRM)

WAM described MMA Offshore as a business that provides marine vessels and an array of subsea services to the offshore energy sector, government and defence and wider maritime industries.

The fund manager pointed out that in July, the ASX small-cap share announced a trading update, where it revealed expectations that earnings before interest, tax, depreciation and amortisation (EBITDA) will be between $66 million to $68 million. Achieving that EBITDA guidance would represent an increase of 100% year over year, and stronger than the market was expecting.

The cause of that EBITDA performance was due to a number of vessels "trading through the traditionally quieter Southeast Asian monsoon period, and strong demand from oil, gas and offshore wind markets which is driving price increases."

WAM commented on the company's outlook:

We expect the positive momentum for MMA Offshore to continue and see the potential for commentary around possible capital management or accretive bolt-on acquisitions at the upcoming 2023 full-year result.

Reject Shop Ltd (ASX: TRS)

The fund manager noted that Reject Shop has over 370 locations in Australia and is an ASX small-cap share that operates as a discount variety store chain offering a range of consumer goods and merchandise.

The retailing environment has been tough during the COVID-19 times, but WAM believes that the business is well-placed to operate in this inflationary environment because of the "cost-conscious product offering".

WAM also noted that freight costs are "starting to reduce" which should provide a tailwind for the business.

According to the ASX, it has a market capitalisation of $204 million. The fund manager pointed out that the company has $80 million of cash, so it could be a takeover target seeing as listed global peers trade on "much higher valuations".

WAM also referred to the takeover interest from Canadian business Dollarama, which was reported in the Australian Financial Review, though those talks reportedly ended.

Should you invest $1,000 in Cosol Limited right now?

Before you buy Cosol Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Cosol Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 7 February 2025

Motley Fool contributor Tristan Harrison has positions in Wam Microcap. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Mma Offshore. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Small Cap Shares

A man slumps crankily over his morning coffee as it pours with rain outside.
Small Cap Shares

Why this Telstra-linked ASX small cap stock just crashed 90%

This small cap is having a very bad session. What's going on?

Read more »

A young boy wearing a hat, sunnies and striped singlet looks fierce and flexes his arm in victory.
Small Cap Shares

The ASX small-cap stock trading at 'half of the earnings multiple of industry leaders'

A leading fund manager sees a lot of untapped value for this soaring ASX small-cap stock.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Small Cap Shares

These small cap ASX stocks could rise 15% to 70%

Analysts think big returns could be on the cards for buyers of these stocks.

Read more »

A female ASX investor looks through a magnifying glass that enlarges her eye and holds her hand to her face with her mouth open as if looking at something of great interest or surprise.
Small Cap Shares

2 under-$5 ASX hidden gems worth your attention

These buy-rated shares are flying under the radar. Let's see why analysts are bullish on them.

Read more »

Miner looking at a tablet.
Resources Shares

2 small-cap ASX mining shares exploding 40%+ on China tariff news

Investors are sending the small-cap ASX mining shares flying higher on Wednesday.

Read more »

Siblings jumping on a trampoline.
Small Cap Shares

3 ASX small-cap shares with a 'solid growth outlook' for 2025

A leading fund manager expects strong growth from these ASX small-cap stocks in 2025.

Read more »

A little girl with red hair runs excitedly with a rocket strapped to her back, trying to launch.
Small Cap Shares

Guess which ASX small-cap stock exploded 154% on big US news!

ASX small-cap stocks carry added risk, but also sometimes offer supersized rewards.

Read more »

A group of businesspeople clapping.
Healthcare Shares

This fund returned 109% in 2024. Here are 2 of its best-performing ASX shares

Small caps proved to be the winners last year.

Read more »