The Metcash Limited (ASX: MTS) share price is on watch today after a trading update from the Aussie conglomerate.

Why is the Metcash share price on watch?

The Metcash share price is worth watching after the group’s investor day saw a trading and dividend policy update.

In its Food segment, Metcash remains “positioned as an alternative” to the majors like Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW). This includes focusing on retailer competitiveness and retaining market share gains.

In Hardware, Metcash said it is a “clear #2 in the market” with a strong trade focus. In Liquor, Metcash also said it remains a clear #2 with its Independent Brands Australia (IBA) network of ~2,700 stores. Strong retail sales growth through the coronavirus pandemic has helped to boost earnings.

Metcash reported a strong balance sheet and underlying cash flows. That has laid a platform to fund growth plans and boost investor returns.

The Metcash share price is one to watch following today’s update. Shares in the Aussie group have delivered strong shareholder returns ahead of the S&P/ASX 200 Index (ASX: XJO) and its peer group on a 5-year basis.

Metcash cited increased “at home” activities like cooking, DIY maintenance and beverage consumption as key growth drivers. An increased preference for shopping locally has also helped to boost Metcash’s sales.

The conglomerate reported strong sales momentum for all business segments so far in the second half of 2021. Supermarket, hardware and liquor sales have all jumped by double digits compared to the prior corresponding period.

This strong momentum has provided the board with more flexibility in its capital management plan.

Metcash also announced an increased target dividend payout ratio. Metcash will increase the ratio from 60% to 70% of underlying net profit after tax, effective FY2021.

Foolish takeaway

The Metcash share price is one to watch today after the company’s latest trading update. It will be interesting to see how the group’s shares perform during early trade following news of the increased dividend payout ratio and strong trading update.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• These are the 10 most shorted shares on the ASX
• Metcash (ASX:MTS) share price hits 52-week high and could go even higher
• These are the 10 most shorted shares on the ASX
• These are the 10 most shorted shares on the ASX

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Pendal Group (ASX: PDL) share price is on watch this morning after a leadership announcement from the company prior to the market open.

Why is the Pendal share price one to watch?

Pendal is an independent, global investment management group founded in 2007. Formerly known as BT Investment Management, Pendal has ~$100 billion in funds under management (FUM) with a market capitalisation of $2.0 billion.

The Pendal share price is on watch this morning after a Pendal Group CEO Succession announcement. Pendal announced that CEO Emilio Gonzalez will step down after 11 years in the role.

Nicholas Good, CEO of J O Hambro Capital Management (JOHCM) in the United States will be Mr Gonzalez’s successor. JOHCM is a wholly owned subsidiary of Pendal’s and a boutique investment management company with offices around the world.

Pendal chair James Evans said the “robust succession plan” has enabled the key appointment. Mr Gonzalez has a 6-month notice period and will look to enable a “smooth” transition.

Pendal shareholders have seen a 322.9% total return since Mr Gonzalez’s appointment in January 2010. That compares to a 130.1% total shareholder return for the S&P/ASX 200 Index (ASX: XJO) over the same period.

What else is happening for Pendal?

The Pendal share price has fallen 4.9% lower to start the year. That’s despite the investment group reporting a $5 billion increase in FUM in January 2021.

Pendal reported $97.4 billion in FUM at the end of last year despite net outflows of $1.6 billion. Shares in the Aussie investment group are up 40.5% in the last year.

The Pendal share price is trading at a price-to-earnings (P/E) ratio of 16.2 with a 5.9% dividend yield prior to Tuesday’s market open.

Foolish takeaway

The Pendal share price is one to watch in early trade after the company’s latest leadership announcement. Investors have received strong shareholder returns during Mr Gonzalez’s tenure and will be watching the company’s shares closely following today’s update.

More reading

• 3 ASX shares that just stormed to new 52-week highs
• We’ll get 7.8% yield from ASX this year, says investment pro
• Chinese factory output is up an astonishing 35%
• Got money to invest for dividends? Here are 2 ASX shares
• Why all eyes will be on the PointsBet (ASX:PBH) share price today

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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With the Australian share market trading close to its highest levels of the year, it will come as no surprise to learn that a number of ASX shares are doing the same.

Three ASX shares which have just hit new highs are listed below. Here’s why investors have been buying their shares:

BlueScope Steel Limited (ASX: BSL)

The BlueScope Steel share price hit a multi-year high of $19.01 on Monday. Investors have been buying the steel producer’s shares after spot prices climbed to very favourable levels. This led to analysts at Ord Minnett recently putting an accumulate and lofty $24.00 price target on the company’s shares. Its analysts believe the company may have to upgrade its earnings guidance in the near future.

Codan Limited (ASX: CDA)

The Codan share price continued its positive run and climbed to a record high of $15.74 yesterday. Investors have been buying the electronic products company’s shares thanks to its strong performance in FY 2020 and FY 2021. This has been underpinned by very strong demand for metal detectors thanks to new product launches and a sky high gold price. Also giving its shares a boost on Monday was news that Codan will be included in the ASX 200 at the next quarterly rebalance.

Silk Laser Australia Ltd (ASX: SLA)

The Silk Laser share price was on form again on Monday and rose to a new record high of $5.20. This latest gain means the laser clinic company’s shares are now up 50% from their December IPO price of $3.45. The catalyst for this was the release of a very strong half year result in February. For the six months ended 31 December, Silk Laser revealed a 62% increase in network sales to $44.9 million and a 305% jump in net profit after tax to $4.7 million. This strong form is expected to continue in the second half, leading to management upgrading its full year guidance.

More reading

• Why the Hub24 (ASX:HUB) share price is firing up 12% today
• Why Codan, Evolution, Opthea, & People Infrastructure shares are charging higher
• ASX quarterly rebalance: HUB24 joins ASX 200, Brainchip into ASX 300
• Why Nuix, Hub24 shares are on watch
• Top fund manager names these 2 ASX shares as buys

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Dividend shares were out of favour last year as the COVID-19 pandemic hit. Businesses roundly cut yields to preserve capital for tough times.

That made life difficult for older investors, who rely on yield for their day-to-day income.

“It’s been near impossible for retirees to generate any sort of meaningful income from cash in the bank or bonds for a number of years now and when dividends were slashed throughout 2020, I think many would have been facing the prospect of drawing down capital to keep the lights on,” said Plato Investment Management managing director Dr Don Hamson.

But as this year began, experts predicted dividend stocks would make a roaring comeback in 2021.

“In 2021, we’re expecting a dividend increase of 30% in Australia in aggregate,” Tribeca Investment Partners portfolio manager Jun Bei Liu said in January.

“In the low bond yield and low interest rate environment, it looks incredibly attractive.”

And one ASX shares fund has now put its money where its mouth is.

Plato Investment Management announced Monday that its Australian Shares Income Fund has set a goal to rake in a whopping 7.8% gross yield this year.

The company forecasts the S&P/ASX 200 Index (ASX: XJO) would produce a 4.8% gross yield in 2021. Plato is betting that its active funds management will add another 3% on top of that.

Hamson attributed his team’s confidence to a bumper mid-year reporting season last month.

“The February reporting season saw a number of companies declaring record dividends and what’s most encouraging is that many of those businesses that have handsomely rewarded investors, look to have strong tailwinds in the foreseeable future,” he said.

“Thankfully, we’ve now seen a very swift recovery in dividends.”

The sectors to supersize ASX dividends in 2021

He picked out the banks as major contributors to income investing this year. Commonwealth Bank of Australia (ASX: CBA) was Hamson’s pick out of the big four institutions.

“Its $1.50 dividend equates to only 67% of earnings and the bank has said its pay-out ratio is likely to be 70 to 80% this year, so a stronger second-half dividend is expected,” he said.

“There’s also the possibility management will use excess franking credits to undertake an off-market buyback in the coming year, which will be a lucrative opportunity for retirees in particular.”

Hamson also named miners, and especially iron ore extractors, as a boon to income investors in 2021.

“We think this is a space income investors can’t afford to ignore right now. Of the top 6 dividend payers in Australia, 3 are now mining stocks,” he said.

“Are the payouts sustainable? Well, we think the supply and demand fundamentals for iron ore prices remain solid and if prices come off $100 per tonne from the highs, these companies still have good profit margins. Management at the big miners also seem to be learning from mistakes about over-investing in new mines which have impacted dividends in the past.”

Outside of those industries, the consumer discretionary sector would also chip in with some dividend gems, according to Hamson.

“The likes of JB Hi-Fi Limited (ASX: JBH) and Super Retail Group Ltd (ASX: SUL) have delivered in spades for investors — and strong sales momentum in the first quarter of this year indicates the retail boom we saw stemming from the pandemic still has some way to go.”

Hamson warned investors to avoid dividend traps with careful selection of quality companies.

“We believe diversity, active stock picking which focuses on avoiding dividend traps and tax effective portfolio management will be the keys to getting even more from dividends in the coming 12 months.”

Plato’s Australian Shares Income Fund is only for wholesale investors. But the company has a sister product, Plato Income Maximiser Ltd (ASX: PL8), which simulates the experience for retail shareholders.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 recovers, Evolution Mining acquisition, Afterpay sinks
• 2 ASX 200 shares to buy for income
• Why the Hub24 (ASX:HUB) share price is firing up 12% today
• Triple whammy hammers the Fortescue (ASX:FMG) share price today

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Super Retail Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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During an eventful day with many ups and downs, the S&P/ASX 200 Index (ASX: XJO) closed yesterday’s session 0.10% higher. While there are many reasons the index may have inched higher, one reason could be recent economic news coming out of China.

Reuters reported yesterday that industrial output in the People’s Republic was up an enormous 35.1% in the January/February period compared to one year earlier. China aggregates its January/February data to accommodate for Lunar New Year celebrations.

The results beat the median 30% growth figure extracted from a Reuters poll of analysts. In December, output was up 7.3% on the prior year.

It’s not unreasonable to expect the performance of the Chinese economy to have some impact on the ASX. In 2019, 40% of all Australian exports (US$ 103 billion) went to the largest Asian nation.

Signs of recovery in the data

COVID-19’s effects on the Chinese economy were an omen for global capital. The virus, originating in the city of Wuhan in Hubei Province, led to a 6.8% contraction in China’s GDP during Q3 of FY20. The disease spread throughout the world soon after.

Given that, it’s not surprising factory output is now growing at such a tremendous rate. Yet even still, there are signs China’s economy is growing beyond its pre-pandemic levels. Many are attributing this to China’s ability to quickly contain the virus within its borders. Additionally, according to Reuters, the recovery was aided by “robust trade, pent-up demand and government stimulus.”

Compared to January/February 2019, China’s industrial output is still up 16.9%. Reuters is attributing the impressive growth rate to a surge in foreign demand. Within China too, confidence and demand are heading in the right direction.

Retail sales in China were up 33.8% – greater than the 32% figure predicted by analysts. In December, retail sales were up only 4.6% and, in the first two months of 2020, they contracted by 20.5%. Even compared to the beginning of 2019, retail sales were up 6.4%.

Likewise, fixed asset investments are seeing a similar bump. They increased by 35% on 2020. This, however, was below analyst predictions of a 40% jump. Compared to the beginning of 2019, fixed asset investments still grew by 3.5%.

To get even more granular, private-sector fixed asset investments were up 36.4%. Private-sector investment makes up 60% of all investment in the single-party state.

China’s economy was the only major one to record an expansion during 2020. It grew by 2.3%.

How the news might affect ASX-listed companies

Many Australian companies are becoming increasingly reliant on Chinese demand for revenue growth. However, despite the positive news, there are still reasons to temper expectations for Australian shares.

For one, the Chinese government is still placing hefty, retaliatory tariffs on many Australian goods, including wine, beef, and even lobsters. As well, the Australian Government’s imposed international border lockdown is materially affecting companies like A2 Milk Company Ltd (ASX: A2M) and its supplier, Synlait Milk Ltd (ASX: SM1). The dairy producer heavily relies on the daigou market to sell its baby formula.

Despite all the bluster, the Central Committee is yet to place tariffs on the biggest Australian export to its nation – iron ore. Chinese industry is reliant on Australia’s steady supply of quality ore to keep it moving. Massive growth in output and no tariffs may bode well for iron ore exporters like BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO), among others.

More reading

• Struggling to ride the wave of constant investing news?
• Why the Magellan (ASX:MFG) share price leapt 5% today
• Triple whammy hammers the Fortescue (ASX:FMG) share price today
• Do brokers rate the BHP (ASX:BHP) share price as a buy?
• This fundie refuses to invest in gambling and fossil fuels

Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The two ASX shares in this article could be ideas for dividends.

Income is difficult to come by when it comes to assets other than ASX dividend shares because of how low the Reserve Bank of Australia (RBA) interest rate is.

Some businesses are rewarding investors quite handsomely each year with dividends or distributions from their profit.

These two ASX dividend shares could be ones to think about:

Accent Group Ltd (ASX: AX1)

Accent Group is one of the businesses that is seeing an enormous level of online sales growth, which is driving margins and profit higher.

Digital sales grew by 110% year on year to $108.1 million, this represented 22.3% of total sales. Total sales only went up by 6.6% to $541.3 million.

The gross profit margin improved by 140 basis points to 58.1%. The company said that inventory was clean with a strong in-stock position going into the second half of FY21.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) went up by 44% to $97.5 million and earnings before interest and tax (EBIT) grew by 47.3% to $81.8 million.

The bottom line grew even faster. Net profit after tax (NPAT) grew 57.3% to $52.8 million and earnings per share (EPS) rose 56.9% to 9.76 cents. It’s these profitability metrics that allow the board to declare stronger dividends.

The ASX dividend share decided to pay an interim dividend of 8 cents per share, representing a 52.4% increase.

In the first eight weeks of the second half of FY21 like for like sales were up 10.7%, with digital sales 65.4% higher than last year.

Using the dividend estimate on Commsec, at the current Accent share price it has a projected FY21 grossed up dividend yield of 7.5%.

Charter Hall Long WALE REIT (ASX: CLW)

This real estate investment trust (REIT) is one of the largest on the ASX. It’s run by property manager Charter Hall Group (ASX: CHC).

One the brokers that likes this ASX dividend share is Citi, which has a share price target of $5.30 for Charter Hall Long WALE REIT.

The idea of this REIT is that it owns a diversified property portfolio and has tenants on long-term leases. Some tenants include Telstra Corporation Ltd (ASX: TLS), Australian government entities, BP, Woolworths Group Ltd (ASX: WOW), Ingham’s Group Ltd (ASX: ING) and Coles Group Ltd (ASX: COL).

In the half-year result, Charter Hall Long WALE REIT said that it had a weighted average lease expiry (WALE) of 14.1 years.

After a number of acquisitions over the last year, it now has a portfolio worth around $4.5 billion, with more than half of the portfolio having triple net lease (NNN) exposure.

The ASX dividend share also recently announced that it had secured $500 million of long-term debt. The seven-year notes worth $300 million were priced at a fixed rate of 2.09% and the 10-year notes worth $200 million were priced at fixed rate of 2.79%. This increases the average debt maturity from 4.1 years to 5.2 years, with an weighted average cost of debt of 2.3%.

Citi thinks that the acquisitions will help earnings in FY21 and it’s expecting operating EPS of 29.3 cents. This translates to a forward distribution yield of 6.3% at the current Charter Hall Long WALE REIT share price.

More reading

• Leading brokers name 3 ASX dividend shares to buy
• 2 ASX dividend shares with 5% fully franked yields
• ASX fashion and beauty shares shine on half-year results
• Is the Accent (ASX:AX1) share price in the buy zone after today’s decline?
• Why Accent, Fortescue, Western Areas, & Zip shares are tumbling lower

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool Australia has recommended Accent Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The PointsBet Holdings Ltd (ASX: PBH) share price will be one to watch on Tuesday.

This follows the release of an acquisition announcement by the sports betting company this morning.

What did PointsBet announce?

This morning PointsBet announced that its wholly owned Irish subsidiary, Lockspell Limited, has entered into a binding share purchase agreement to acquire Banach Technology. The transaction remains subject to customary completion conditions and is expected to close in April.

According to the release, PointsBet will acquire Banach Technology for US$43 million on a cash and debt free basis. This will be paid 55% in cash and the remainder in PointsBet scrip (1,752,875 shares).

In addition, the company intends to provide Banach Technology with US$4 million in funding to assist in the conversion process of existing equity options. However, this amount will be retained by PointsBet post completion of the transaction.

What is Banach Technology?

Banach Technology is a Dublin-based provider of proprietary risk management platforms and quantitative driven trading models. These platforms and models support complex pre-game and in-play betting products across numerous sports, including the four major American sports and international soccer.

The release explains that the Banach Technology team is deeply experienced, particularly in leading pre-game and in-play sports wagering markets. They previously established the Quants division of Paddy Power.

Management notes that the acquisition will position PointsBet as a leader of in-play sports wagering in the United States. This comes at an important time, as in-play wagering is expected to grow exponentially. In fact, within the next 3 years, it expects in-play wagering to represent ~75% of all sports wagering activity in the United States.

“Delighted”

PointsBet’s Group CEO and Managing Director, Sam Swanell, commented: “We are delighted with the acquisition of Banach and that its well credentialled team have agreed to join PointsBet. As legalisation to approve US sport betting accelerates across the US, it has become clear that the in-play opportunity will be very significant and those with the best depth and breadth of product will win.”

“Technology is at the forefront of everything we do at PointsBet and we have undertaken an in-house approach to proprietary technology as the key priority. In Banach we have found a like-minded team of technologists and the acquisition is a preferable approach to developing our in-play capabilities organically, given it allows us to dramatically ramp up our speed to market while still allowing us to own market leading technology and continue to control our destiny,” he added.

More reading

• Could this overnight news lift the PointsBet (ASX:PBH) share price?
• Pointsbet (ASX:PBH) share price loses 6%. Here’s why
• Growth outlook fails to save the Aristocrat share price today
• PointsBet (ASX:PBH) share price falls despite 174% revenue growth

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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I’m a big fan of buy and hold investing and believe it is the best strategy for generating wealth over the long term.

Legendary investor Warren Buffett is someone that uses this strategy and to great effect. And given the vast fortune he has amassed over the last six decades using this style of investing, it’s hard to argue against it.

But which shares would be good buy and hold options? Listed below are two ASX shares which could have the potential to provide investors with strong returns over the long term:

NEXTDC Ltd (ASX: NXT)

NEXTDC is a leading data centre-as-a-service provider. It owns a growing network of world class centres in key locations across Australia. While NEXTDC has been growing at a solid rate in recent years thanks to the shift to the cloud, its growth has gone up a gear over the last 12 months.

This is because the pandemic has led to the shift to the cloud accelerating and underpinned a significant increase in demand for capacity in its data centre. This has supported strong revenue and earnings growth.

Positively, the transition to the cloud still has a long way to go, which should support strong demand domestically throughout the 2020s. In addition, the company has recently opened offices in Singapore and Tokyo. If it expands into these markets, it could provide NEXTDC with a significant runway for growth.

UBS is positive on the company. It has a buy rating and $15.40 price target on its shares.

ResMed Inc. (ASX: RMD)

ResMed could be another great buy and hold option for investors. It is a medical device company with a focus on sleep treatment products. The company has been growing at a consistently strong rate over the last decade and, positively, looks well-placed to continue this form long into the future. 

This is due to its world-class, cloud-connected hardware and software solutions and its huge addressable market. Management currently estimates that there are 936 million people with sleep apnoea globally. And as the majority of these sufferers remain undiagnosed, it gives ResMed a significant runway for growth.

In addition to this, the company notes that there are 380 million people who suffer from chronic obstructive pulmonary disease (COPD) and over 340 million people living with asthma. That’s another 720 million people that could benefit from ResMed’s products.

Morgans is a fan of ResMed. It recently retained its add rating and put a price target of $30.09 on its shares.

More reading

• This fundie refuses to invest in gambling and fossil fuels
• 10 of the best ASX shares to buy in March
• 2 excellent ASX shares to buy and hold today
• 3 fantastic ASX growth shares to buy in March
• 2 fantastic ASX growth shares to buy this week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended ResMed Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There are a good number of options at the small end of the market for investors to choose from.

However, two small cap ASX shares that stand out from the crowd are listed below. Here’s what you need to know about them:

ELMO Software Ltd (ASX: ELO)

ELMO is a cloud-based human resources and payroll software platform company. The company’s increasingly popular platform streamlines a large number of important processes. This saves time and money for businesses.

Demand has remained strong for ELMO’s software over the last 12 months. This led to ELMO reporting annualised recurring revenue (ARR) of $74.2 million at the end of December. This was an increase of 42.8% over the prior corresponding period. This was driven by a combination of organic growth and the benefits of acquisitions.

Positively, this is still only scratching at the surface of its significant market opportunities in the ANZ and UK markets. In addition, the company’s jurisdiction agnostic platform gives it the option to expand into new markets in the future with relative ease.

One broker that is a fan of ELMO is Morgan Stanley. It currently has an overweight rating and $9.70 price target on its shares.

Nitro Software Ltd (ASX: NTO)

Nitro is a growing document productivity software company best-known for its Nitro Productivity Suite. This solution provides users with integrated PDF productivity and electronic signature tools via a software-as-a-service and desktop-based software solution.

The company has been experiencing strong demand for its products from some of the world’s biggest companies. This includes Barclays, CBRE, IBM, and Toyota.

This strong demand led to the company releasing a strong full year result last month. For the 12 months ended 31 December, the company reported ARR of $27.7 million. This was up 64% year on year and ahead of its upgraded guidance.

Positively, management is predicting more strong growth in FY 2021. It expects FY 2021 ARR to be in the range of $39 million to $42 million. This represents year on year growth of 41% to 51.6%.

Morgan Stanley is also positive on Nitro. It recently retained its overweight rating and lifted its price target to $3.70 price target.

More reading

• Leading brokers name 3 ASX shares to buy today
• ASX quarterly rebalance: HUB24 joins ASX 200, Brainchip into ASX 300
• ASX tech correction? 10 of the worst-hit shares
• ASX All Technology Index teetering on verge of a bear market
• 2 small cap ASX tech shares trading at a big discount

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia has recommended Elmo Software and Nitro Software Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Respected fund manager Wilson Asset Management (WAM) has recently identified two ASX shares that it owns in its portfolio.

WAM operates several listed investment companies (LICs). Two of those LICs are WAM Capital Limited (ASX: WAM) and WAM Leaders Ltd (ASX: WLE).

There’s also one called WAM Active Limited (ASX: WAA) which looks at businesses it thinks are the most undervalued.  

WAM says WAM Active invests in market mispricing opportunities in the Australian market.  

The WAM Active portfolio has delivered gross returns (that’s before fees, expenses and taxes) of 12.1% per annum since inception in January 2008, which is superior to the Bloomberg AusBond Bank Bill Index return per annum of 3%.  

These are the two ASX shares that WAM outlined in its most recent monthly update:

Capitol Health Ltd (ASX: CAJ)

WAM explained that Capitol Health operates 63 community-based diagnostic imaging clinics, employing more than 800 staff and delivering more than 1.2 million procedures every year.

The healthcare business beat market expectations with its FY21 half-year result where revenue grew by 5.9% to $85.3 million. Operating earnings before interest, tax, depreciation and amortisation (EBITDA) rose 50.1% to $26.6 million.

Capitol Health also reported that its operating profit margin was 31.1%, up from 22% in the prior corresponding period. Statutory net profit after tax (NPAT) was $6.2 million – an increase of 131.6% year on year. The interim dividend was maintained at 0.5 cents per share.

WAM was pleased by the fact that the ASX share delivered “robust organic growth” despite having the majority of its business closed during the Melbourne lockdowns. Earnings benefited from a close control on costs.

The fund manager said that a broader rebound in industry demand is a catalyst for future earnings growth, while a stronger balance sheet allows Capital Health to execute earnings accretive acquisitions.  

Virgin Money UK CDI (ASX: VUK)

Virgin Money UK is one of the larger banks in the UK, after a merger between CYBG (Clydesdale and Yorkshire Banking Group) and Virgin Money UK. The aim was to gain enough scale to seriously challenge big banks like Barclays and HSBC.

It has a presence on the ASX because CYBG was spun out of National Australia Bank Ltd (ASX: NAB) a few years ago and retained a presence on the ASX.

Virgin Money has 6.4 million customers, which the company helps through its online personal, mortgage and business banking services.

Last month, the UK bank said that it was making a good start to the year with its continued roll-out of its rebranding programme, a return to making a profit in statutory terms and high levels of customer deposits – the quarter ending 31 December 2020 showed growth of 0.9%.

WAM pointed out that Virgin Money’s level of active payment holidays declined across the portfolio. This is like how Australian borrowers were able to get deferrals on their loans from banks like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and NAB due to the impacts of the pandemic on their finances.

The fund manager is positive about Virgin Money UK’s outlook because the UK’s vaccination program and helpful fiscal and monetary policies that may support the company’s rebound from the COVID-19 pandemic.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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