If I were going to invest $5,000 into ASX shares then I know of two that I’d want to buy.
I like the look of businesses that have plenty of growth potential and are valued at a seemingly good price.
These are the ones that I’d like to buy at the moment:
Pushpay Holdings Ltd (ASX: PPH)
Pushpay offers a lot of the things that I like to look for in an ASX share investment. It’s a digital donation and church management business.
To start with, using the numbers on CommSec, Pushpay is valued at 26 times the estimated earnings for the 2023 financial year. I think that’s very reasonable for a business that has long-term growth plans and is managing to increase its profitability so much.
Remember, in the FY21 result, Pushpay’s gross profit margin increased from 65% to 68%. On top of that, as a percentage of operating revenue, operating expenses improved by 11 percentage points from 47% to 36%. Pushpay is seeing operating leverage in all parts of its business. That led to net profit jumping 95% to US$31.2 million and operating cashflow surging 145% to US$57.6 million.
The ASX share sees potential growth in several areas. The shift to digital payments can boost its market share over time. An economic recovery in the US should lead to growth of the overall giving ‘market’. Pushpay continues to improve its economic leverage (meaning growing margins). And it’s now looking at growth into other markets such as the Catholic segment in the US and potentially international growth in the longer-term.
Magellan Financial Group Ltd (ASX: MFG)
Magellan is a very interesting funds management business. It’s quite a bit more expensive when compared to most other ASX fund managers, but it’s not expensive compared to plenty of other ASX growth shares.
The fund manager has become so large that it’s now very profitable. Fund managers don’t have many costs except for employees. New funds under management (FUM) mostly adds to profit.
In the FY21 half-year report, Magellan’s funds management business saw profit before tax and before performance fees of $256.2 million, compared to management fee revenue of $309.4 million. That’s a margin of 82.8%.
At 30 June 2020 the total FUM was $97.2 billion. At 31 December 2020 the total FUM was $101.3 billion. The latest update from April 2021 showed FUM had increased to $110.4 billion. More FUM means more core profit. The performance fees are just a potential bonus for me.
I’m excited by Magellan’s diversification strategies including making investments itself into operating businesses like Guzman y Gomez as well as Barrenjoey. The launch of the new retirement product could also grow the ASX share’s FUM further.
According to CommSec, the Magellan share price is valued at 18 times the estimated earnings for the 2022 financial year. In the next financial year it’s expected to pay a partially franked dividend yield of 4.9%.
