Respected fund manager Wilson Asset Management (WAM) has recently identified two small cap ASX shares that it owns in its portfolio.
WAM operates several listed investment companies (LICs). Some focus on larger companies like WAM Leaders Ltd (ASX: WLE) and WAM Capital Limited (ASX: WAM).
There's also one called WAM Microcap Limited (ASX: WMI) which targets small cap ASX shares with a market capitalisation under $300 million at the time of acquisition.
WAM says WAM Microcap targets the most exciting undervalued growth opportunities in the Australian microcap market.
The WAM Microcap portfolio has delivered gross returns (that's before fees, expenses and taxes) of 21.3% per annum since inception in June 2017, which is superior to the S&P/ASX Small Ordinaries Accumulation Index average return of 7.2%.
These are the two small cap ASX shares that WAM outlined in its most recent monthly update:
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Damstra Holdings Ltd (ASX: DTC)
WAM explained that Damstra provides integrated workplace management solutions to help companies with safety and regulatory compliance.
The fund manager said in October the small cap ASX share reported record first quarter revenue of $5.2 million, representing 34% growth on the prior corresponding period. WAM also said the company successfully acquired Vault Intelligence Limited, a workforce performance and protection technology company, a strategic step that allow Damstra to scale, diversify and fast track global growth.
Damstra also reported that its cash receipts was $7.1 million for the quarter, up 61% compared to the prior corresponding period. Operating cash flow was $2.4 million, which was up 25% compared to last year. The company finished with a cash balance of $9.6 million.
The small cap ASX share's gross margin was 72%, up from 69% in FY20. Damstra said that this showed strong operating leverage.
User numbers increased to 418,000 with 47 clients added during the quarter. Its client churn was less than 0.5% in the first quarter of FY21.
The Damstra share price has risen by 280% since the market bottom on 23 March 2020.
Serko Ltd (ASX: SKO)
WAM said that Serko is a New Zealand based online travel booking and expense management company for the business travel market.
The small cap ASX share has benefitted from an uplift in travel and the state by state reopening of borders between New Zealand and Australia. The company announced a capital raising in October, with an oversubscribed share purchase plan and placement raising a combined NZ$67.5 million at NZ$4.55 per share. WAM said that Serko is expected to report its result this week.
In the capital raising update, Serko said that the lifting of travel restrictions in New Zealand resulted in transactions rebounding to approximately 70% of pre-COVID transaction volumes (measured against equivalent days in 2019) following the adoption of alert level 1 in mid-June, before declining again when further travel restrictions were imposed in August 2020.
Seko revealed that travel transaction volumes are currently running at approximately 30% of last year's corresponding period volumes for Australasia as at 20 September 2020.
In North America, Serko invested heavily in its platform for expansion into the region.
Current booking volumes are low, however, management believe that this market provides a significant growth opportunity over time and has continued to expand its reseller base in this market.
Serko said that it has added four new TMC resellers since 31 March 2020, bringing the total to nine resellers, and is in the process of activating these partners.
The small cap ASX share is in advanced stages of negotiation for a large direct contract with a US fortune 500 company.
