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 Research Limited (ASX: WAX).
There's also one called WAM Leaders Ltd (ASX: WLE) which looks at the larger businesses on the ASX.
WAM says WAM Leaders actively invests in the highest quality Australian companies.
The WAM Leaders portfolio has delivered gross returns (that's before fees, expenses and taxes) of 14% per annum since inception in May 2016, which is superior to the S&P/ASX 200 Accumulation Index average return of 9.1%.
These are the two ASX shares that WAM outlined in its most recent monthly update, which were two of the largest contributors of performance for the month:
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Telstra Corporation Ltd (ASX: TLS)
Telstra is the clear market leader when it comes to telecommunications, providing both broadband and mobile offerings to households, businesses and governments.
WAM Leaders is positive about Telstra because of the plan to realise value through the separation and partial sale of its mobile phone towers that is currently underway.
The fund manager said that Telstra's average revenue per mobile user has reached an inflection point, with the earnings outlook expected to improve as 5G take up accelerates and even more after international roaming revenue returns.
NBN headwinds are subsiding because the transition has largely already occurred. WAM Leaders thinks that the ASX share will only need to hit the lower end of management's medium-term earnings targets to continue to pay the current full year dividend of 16 cents per share.
However, the fund manager said that one of the key risks for Telstra is industry competition and changes to the TPG Telecom Ltd (ASX: TPG) board in late March are a "clear positive" for industry rationality over the coming years.
Boral Limited (ASX: BLD)
Construction products business Boral is the other ASX share that the fund manager brought attention to.
It's a large business with 23,000 employees and 783 operating and distribution sites globally.
WAM Leaders likes the new management team and that strategy that is being pursued. Boral is currently trying to reduce costs, go through a turnaround, divest assets (such as its US building product assets) and manage its capital. Boral also benefits from macroeconomic tailwinds.
The fund manager thinks there are several catalysts that can help the business over the next year.
Progress is being made on management's $300 million transformation of earnings before interest and tax (EBIT) targets and the expected improvement in operating conditions for both Australian building products and US fly ash.
Boral recently completed the sale of its stake of USG Boral for US$1 billion. It's going to use this money to pay down debt.
It has started its on-market share buyback ahead of schedule and this is one of the reasons for WAM Leaders liking the ASX share.
