I’m always on the lookout for top class ASX shares that look like they are good value and they could produce good returns over time.
The very best businesses like Xero Limited (ASX: XRO) are priced for it. But I think there are other ASX shares have plenty of long-term growth potential and look good value.
Adairs Ltd (ASX: ADH)
Using estimates on CommSec, the Adairs share price is valued at just under 10 times the estimated earnings for the 2023 financial year.
Businesses that are exposed to the consumer staying at home as well as the strong Australian housing market have done well and could continue to do well. Adairs is strongly benefiting from both of those trends with its offers of home furnishings and furniture.
Both Mocka and Adairs have seen a good increase in demand and the gross profit margin.
But it’s the ASX share’s plans that particularly interest me. A new national distribution centre will help Adairs reduce costs, become more efficient and fulfil online orders better. It’s growing its online sales nicely. It is upsizing stores – bigger stores are more profitable. Adairs continues to see opportunities for new stores. All of these add together to be good help for Adairs’ future profit potential.
Not only does it look good value to me, Adairs can also boost shareholder returns with a good dividend. In FY23, it’s expected to pay an annual dividend of $0.26 per share – that’s a fully franked dividend yield of almost 7%.
Webjet Limited (ASX: WEB)
This is a bit of a higher risk, reopening pick.
I think ASX travel shares can now see the light at the end of the tunnel. In the northern hemisphere, domestic and regional travel is coming back in a good way.
Webjet is already seeing a recovery in parts of the business. Just a couple of weeks ago, the business gave a very positive trading update.
It said that it’s going to be operating cashflow positive for the first half of FY22.
The WebBeds business was profitable in July and August and was on track to be profitable in September. Management said that it has seen strong demand as travel restrictions ease in North America and Europe, which the company suggests significant upside as more international markets reopen.
Both the Webjet online travel agency (OTA) and Online Republic businesses were profitable before the NSW and Victorian lockdowns. That’s a good sign once restrictions ease too.
The ASX share says there is significant potential to grow market share by growing into new market segments and benefiting from consumers.
It has made moves to be more efficient, cutting costs by at least 20% when it gets back to scale. Management are expecting greater profitability when borders open.
Webjet is now targeting WebBeds’ EBITDA (EBITDA explained) to be 5% of total transaction value (TTV) (up from 4% before COVID) and revenue to be 8% of TTV. That means WebBeds could achieve an EBITDA to revenue margin of 62.5%. That’s really strong.
Looking at the numbers on CommSec, the Webjet share price is valued at 20x FY23’s estimated earnings.
