I have my eyes on a number of quality ASX shares that look like long-term opportunities.
Businesses that are in growth areas and have initiatives to make things even better could be solid ideas.
I like these two ideas:
Metcash Limited (ASX: MTS)
Metcash is a very interesting business, and underrated in my opinion.
It supplies IGAs and Foodlands in Australia, which provides Metcash with a defensive source of earnings.
Metcash also supplies a very large range of independent liquor stores including Cellarbrations, The Bottle-O, IGA Liquor, Duncans and Thirsty Camel.
For me, the most attractive thing about Metcash is the company’s hardware division which included Total Tools, Mitre 10 and Home Timber & Hardware.
The hardware division is seeing rising profit margins, which is leading to profit growing quickly. In the recent HY22 result, the hardware EBIT (EBIT explained) increased by 53.3%.
Whilst not quite as good as Wesfarmers Ltd’s (ASX: WES) Bunnings, I think the hardware division of this ASX share has loads of long-term potential considering the price that Metcash is trading at.
At the current Metcash share price, CommSec numbers put it at 16 times the estimated earnings for the 2022 financial year.
It also has a dividend yield which keeps growing. On CommSec numbers, the Metcash dividend is going to be a 6.3% yield in FY22 (including the franking credits).
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is an ASX share that is benefiting from the shift from cash payments to digital payments.
This business facilitates digital donations predominantly for large and medium US churches.
It’s processing billions of dollars of donations each year and that number has accelerated rapidly since the onset of the COVID-19 pandemic. In HY22, the processing volume increased by 9% to US$3.5 billion.
One of the most attractive features about Pushpay is the growing operating leverage of the business. The ASX share’s profit margins continue to improve. For example, in the FY22 half-year result the gross profit margin increased by another percentage point to go from 68% to 69%.
When margins are higher it means that more of the revenue turns straight into profit.
Pushpay has a medium-term initiative of capturing 25% of the Catholic segment of the market over the next five years. In the long-term it could expand into new countries.
After the recent 30% decline of the Pushpay share price over the last two months, it’s now valued at just 24 times the estimated earnings for the 2023 financial year according to CommSec.
