I’m always on the lookout for quality ASX 200 (ASX: XJO) shares that I think offer growth potential.
It’s tricky to pick businesses at the moment. COVID-19 has thrown up a number of impacts – ultra-low interest rates, epic demand in certain categories and supply chain issues.
Where are the opportunities? I think they are the businesses that are growing organically and investing for more growth.
Metcash Limited (ASX: MTS)
Metcash is the business that supplies IGAs across the country, supplies several independent liquor businesses like Cellarbrations and the Bottle-O, and it owns Mitre 10, Home Timber & Hardware and 85% of Total Tools. I like to think of it as an alternative Wesfarmers Ltd (ASX: WES).
It may not have as strong underlying earnings as Bunnings or the businesses within Endeavour Group Ltd (ASX: EDV), but I think the value and dividend more than makes up for that. Using the numbers on CommSec, Metcash is valued at 16 times the estimated earnings for the 2022 financial year. Including the franking credits, it could pay a dividend yield of 6.3% in FY22. I think those are attractive characteristics about the ASX 200 share.
I’m optimistic about Metcash’s plan to improve its business in various ways including improving its e-commerce presence, as well as various parts of the business becoming more efficient/profitable.
In the HY22 result, hardware – which I think is now the key division – saw sales rise 17.9% to $1.48 billion and EBIT (EBIT explained) surged 53.3% to $98.9 million. That compares to group underlying EBIT growing 13.9% to $231.2 million.
Webjet Limited (ASX: WEB)
Webjet has certainly been through a lot since the start of COVID-19. But the company has been hard at work cutting costs throughout the company. This should make the business more profitable when the full volume of passengers returns in the next year or two.
There is still a lot of uncertainty, but I think the worst of the restrictions is behind us, which should give Webjet an environment to consistently be profitable and cashflow positive after this northern hemisphere winter.
I think the online-only business model of the ASX 200 share will prove even more attractive in the 2020s when as people look for digital options.
CommSec numbers suggest good profitability will return in FY23, with it currently valued at around 22 times the estimated earnings for the 2023 financial year.
With the Webjet share price down 24% since 8 November 2021, I think this could prove to be an opportunity for investors looking at the ASX travel share.
