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Top fund manager rates these 2 small cap ASX shares as buys

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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 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 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 21.7% per annum since inception in June 2017, which is superior to the S&P/ASX Small Ordinaries Accumulation Index average return of 9.3%.

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

Seven West Media Ltd (ASX: SWM)

Seven West is a media corporation business with a “market-leading” presence on content production across broadcast television, publishing and digital, according to WAM.

In February 2022, the company announced its financial result for the six months to 25 December 2021.

WAM noted that the small cap ASX share’s profit before significant items, net finance costs and tax from continuing operations was $204 million, up 34% compared to the prior year.

The fund manager said that the strong result was reflective of its television network Seven returning to the number one position in ratings and the solid growth of the television advertising market.

Wilson Asset Management believes that Seven West Media’s future growth runway will be driven by its strong balance sheet and its potential expansion into subscription streaming services.

Swoop is an ASX share that provides national internet and telecommunications to wholesale business and residential customers with a focus on fibre and fixed wireless infrastructure.

The fund manager noted that in February 2022, the company reported its half-year result to 31 December 2021, which showed revenue growth of 62% as well as a 130% increase in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) compared to last year.

Swoop finalised three acquisitions which will add to earnings with a further two acquisitions to be completed in the coming months.

At the end of the half-year period, the small cap ASX share had $44.6 million of cash and a $30 million loan facility which is close to finalising.

WAM noted that the Swoop share price didn’t do well in February. It dropped 9%. Swoop shares are down another 11.7% since the start of March 2022.

However, the fund manager is confident about the future because of the organic growth profile of the business, with additional potential upside coming from acquisitions.

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