Key points

• The fund manager Wilson Asset Management has revealed 2 small cap ASX shares that it likes
• Packaging business Pro-Pac Packaging is rated as a buy due to its good valuation
• DGL Group is liked thanks to the large rise in demand of Adblue and the company's high barriers to entry

The fund manager Wilson Asset Management (WAM) has recently identified two top small cap ASX shares that it owns in its portfolio that could be buy ideas.

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 typically 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 24.6% per annum since inception in June 2017, which is superior to the S&P/ASX Small Ordinaries Accumulation Index average return of 12%.

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

Pro-Pac Packaging Limited (ASX: PPG)

The Pro-Pac Packaging share price has been falling in recent months, however WAM still likes the business.

The fund manager attributed the poor performance to pressures from the Omicron COVID variant.

What does Pro-Pac Packaging do? It supplies a wide range of packaging products and services into industries such as primary produce, food and food processing, agriculture, and fast-moving consumer goods.

In the small cap ASX share's December trading update, it noted it was experiencing labour shortages, inflationary pressures, and ongoing global supply chain problems that are impacting the business.

WAM invested in the business because the fund manager was attracted by the valuation and management's plan to reinvigorate revenue growth.

It's expected that the COVID-19 impacts will eventually subside and WAM remains holders of the company within the portfolio based on its attractive valuation.

DGL Group Ltd (ASX: DGL)

One of the small cap ASX shares that featured in the WAM Microcap portfolio as a top 20 position was DGL Group.

This small cap ASX share was described as a founder-led company offering specialty chemical formulation and manufacturing, warehousing and distribution, waste management, and environmental solutions to over 3,100 customers across Australia and New Zealand.

WAM noted that DGL Group recently held its first annual general meeting (AGM) where management confirmed that the business was on track to exceed its earnings expectations that were outlined in the prospectus with its initial public offering (IPO) in May 2021.

After the acquisition of AUSblue in October 2021, DGL Group has seen a surge in demand in the past month for diesel exhaust fluid AdBlue. This fluid reportedly removes nitrous oxides, which helps reduce harmful emissions and should provide a positive tailwind for earnings in the near term.

The fund manager said that it invested in DGL Group due to its strong barriers to entry and its ability to pursue strategic acquisitions that add to earnings, both of which "will underpin its growth profile over the years to come."

The post 2 exciting small cap ASX shares to buy: experts appeared first on The Motley Fool Australia.

The Pro-Pac Packaging Limited (ASX: PPG) share price has leapt higher today following the company's announcement of its FY20 results. The Pro-Pac Packaging share price climbed 18.75% in early trade but, at the time of writing, has pulled back to a more modest gain of 6.25% 

Pro-Pac is a flexibles, industrial and rigid packaging company with a diversified distribution and manufacturing network throughout Australia and New Zealand.

How did the company perform?

The company was pleased to announce statutory net profit of $6.6 million for FY20. It also delivered sustainable improvements in working capital and a 44.4% reduction in net debt to $46.1 million.

Pre-AASB16 (the accounting standard for leases), earnings before interest, taxation, depreciation and amortisation (EBITDA) was 15.4% higher to $32.4 million compared to the prior corresponding period (pcp).

Revenue of $478.2 million was down 1.6% on the pcp as a result of shifting the business mix towards high margin products. However, it was offset by lower revenue levels from the industrial division.

Pleasingly, Pro-Pac Packaging was able to reinstate a fully franked dividend of 0.4 cents per share. 

In March, the group announced the successful refinancing of its senior debt facility for a further 3 years.

"Proud"

That's the word Pro-Pac CEO and Managing Director Tim Welsh used to comment on the FY20 results. He said "I am proud of how the Pro-Pac team has continued to focus on our growth objectives and delivered a set of strong financial results despite the ongoing challenges of the COVID-19 pandemic,"

"The significant improvement in our balance sheet and our focus on driving growth though operational excellence delivers a strong foundation for Pro-Pac to become an industry leader in the manufacturing and distribution of packaging products," he concluded.

Outlook

Pro-Pac Packaging describes FY21 as a year of consolidation, as it delivers on critical transformational projects that will drive a step change in its cost base in FY22 and beyond. The company also highlighted the importance of this transformation to its manufacturing capability and ability to address new markets. 

Key objectives for the coming 12 months include transitioning production from Pro-Pac's Chester Hill Facility and the delivery of the enterprise resource planning (ERP) project to enable business rationalisation and efficiency.

Pleasingly, the company has advised the first two months of FY21 have started well and carried forward the positive momentum from FY20. It has advised a business update will be provided at the annual general meeting (AGM) in November.

About the Pro-Pac Packaging share price

The Pro-Pac Packaging share price is currently trading at 17 cents per share which is 183% higher than its March low. The Pro-Pac share price has increased nearly 42% in year-to-date trading. 

The post Pro-Pac Packaging share price leaps 6% higher on FY20 results and dividend news appeared first on The Motley Fool Australia.

The Pro-Pac Packaging Ltd (ASX: PPG) share price is charging higher today on the back of a trading update and manufacturing site consolidation plans. At the time of writing, Pro-Pac Packaging shares are sitting 8.57% higher for the day at 19 cents per share after being up by as much as 14.29% in early trade.

About Pro-Pac Packaging

Pro-Pac is an international packaging company that operates a distribution and manufacturing network throughout Australia, New Zealand, and Canada.

The company supplies a combination of product and service solutions for primary, secondary, and tertiary packaging for most industry segments. Its vast product range includes flexible films, plastic bottles, gloves, cleaning supplies, and signs.

Pro-Pac was established in 1987 and has been listed on the ASX since 2005.

Why is the Pro-Pac Packaging share price spiking?

This morning, Pro-Pac provided an update on its expected results for the year ending 30 June 2020.

According to the ASX release, trading has been better than expected in the COVID-19 environment. Accordingly, the company expects full-year earnings before interest, tax, depreciation and amortisation (EBITDA) of around $30 million, before significant items. For context, Pro-Pac achieved a $28.1 million EBITDA result in FY19, and a $16.3 million result in the financial year before that.

Additionally, Pro-Pac has continued to target working capital improvements. As a result, it expects its net debt position at 30 June 2020 to be around $60 million. This is down from $82.9 million at 30 June 2019.

Optimisation of manufacturing footprint

In addition to the trading update, Pro-Pac also announced that it will relocate production from its Chester Hill facility in Sydney.

The transition, which is expected to be completed by March 2021, includes the transfer of manufacturing volume from the Chester Hill factory to the company's other facilities in Sydney, Melbourne, Adelaide and Perth. This is to optimise Pro-Pac's manufacturing footprint and expand its service offering in an effort to reduce its cost base and grow profitability.

According to the company, central to this initiative is the investment in a new 7-layer extruder and laminator. This piece of equipment will provide new capacity and capability for growth with existing customers, and also support expansion into new markets.

The closure of the Chester Hill facility will involve capital investment of around $7 million and one-off costs of approximately $12.6 million – incurred over the next 2 years. The project will be funded from cash reserves and existing committed banking facilities, and is expected to result in annualised benefits of around $7 million from FY22.

Commenting on today's update, CEO Tim Welsh said:

Leveraging our existing resources and obtaining the best possible returns on our investments, is an important priority. The consolidation [of facilities] will ensure our Flexibles division remains a leader in the delivery of flexible packaging products and services, for all of the critical markets we serve. The move will also optimise our other sites and enable the business to focus on innovation and growth.

The post Pro-Pac Packaging share price jumps 14% on COVID-19 trading update appeared first on The Motley Fool Australia.

The Pro-Pac Packaging Limited (ASX: PPG) share price will be in focus this morning after the packaging business warned that soft trading conditions over the six months to 30 June 2019 have adversely affected revenues and margins. As a result it now expects FY19 EBITDA before significant items to be around $28 million. This compares to $16.1 million in FY18.

However, investors should note these numbers are before one-off costs, with the company booking huge write downs over the first half of the financial year that took it to a statutory net loss of $144.3 million. Pre-tax operating profit before significant items came in at $9.3 million for the first half of the financial year.

Pro-Pac has also completed the acquisitions of Polypak Plastics Limited for $6.3 million and Perfection Packaging Unit Trust for $49.3 million over the period. As at 31 December 2019, the group's balance sheet gearing stood at 3.4x.

Other leading packaging businesses on the S&P/ASX 200 (INDEXASX: XJO) such as AMCOR PLC/IDR UNRESTR (ASX: AMC) or Pact Group Holdings Ltd (ASX: PGH) may also come into focus for investors today on the back of Pro-Pac's profit warning. 

For a stock that's on an entirely different trajectory, check out this little-known ASX company set to profit of the coming marijuana boom…

The post Pro-Pac hits investors with profit downgrade appeared first on The Motley Fool Australia.

Three shares that are climbing more than most at the small end of the market are listed below. Here's why they are surging higher:

The Bellevue Gold Ltd (ASX: BGL) share price has pushed 2.5% higher to 44 cents. This morning a note out of the Macquarie equities desk revealed that its analysts have initiated coverage on the gold miner with an outperform rating and 70 cents price target. Macquarie believes the high-grade resource that has been defined at its Bellevue site could be developed into a standalone project. In addition to this, it believes the project would be an attractive acquisition target for a larger player.

The Pro-Pac Packaging Limited (ASX: PPG) share price has jumped 7.5% higher to 21.5 cents on the day of the packaging company's annual general meeting. Yesterday the company's shares fell heavily after it downgraded its EBITDA guidance for FY 2019 to the range of $30 million to $33 million due to the impact that drought conditions and higher raw material input costs have had on its Flexibles packaging business. This morning the company revealed that its chief executive officer, Grant Harrod, has tendered his resignation. The market may believe a change at the top is necessary to improve the company's performance.

The QANTM Intellectual Property Ltd (ASX: QIP) share price has surged 7% higher to $1.40 after the intellectual property services company confirmed that it has received a $1.80 per share unsolicited, indicative, preliminary, conditional and non-binding acquisition proposal from IPH Ltd (ASX: IPH). However, the QANTM board believes the proposal is not in the best interests of shareholders. Instead, it continues to support the planned merger with Xenith IP Group Ltd (ASX: XIP).

The post These small cap ASX shares are surging higher on Tuesday appeared first on The Motley Fool Australia.