The 2 ASX shares in this article are rated as buys by brokers. Those ideas are Reject Shop Ltd (ASX:TRS) and Idp Education Ltd (ASX:IEL).
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There are some exciting ASX shares out there that are rated as buys by some brokers.
The businesses in this article are ones that more than one broker think look like attractive value right now because of the profit growth plans of the business. Brokers can be wrong sometimes, but it may suggest a high-conviction idea if several brokers like the same ASX share:
Reject Shop Ltd (ASX: TRS)
The Reject Shop is a discount retailer with a national store network. The company is currently liked by at least three brokers.
Reject Shop’s recent half-year result included revenue and a gross profit margin which wasn’t quite as good as broker Morgan Stanley was expecting, but the net profit was better than expected.
The broker thinks that Reject Shop is going to have a good FY21 and would impress the market if it unveiled more of its strategy and goals.
In that half-year result, Reject Shop reported that whilst sales declined by 0.3% to $434.3 million, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) went up 20.8% to $31.1 million and earnings before interest and tax (EBIT) grew 44.9% to $23.3 million. Underlying net profit rose 46.5% to $16.3 million and statutory net profit grew 79.3% to $17 million.
The ASX share continues to work on its costs and efficiencies to improve profit margins. After it has the desired cost base, it will roll out stores in places that make sense. It’s also trialling an online offering as well.
Morgan Stanley thinks the Reject Shop share price is valued at 17x FY22’s estimated earnings. It has a share price target of $10 for Reject Shop.
Idp Education Ltd (ASX: IEL)
The education business is rated as a buy by at least five brokers, including Macquarie Group Ltd (ASX: MQG).
Macquarie thinks that the business seems to be recovering quicker than expected thanks to a high level of demand from students, even though COVID-19 has ravaged the world.
The broker said that lead indicators suggest that the international English language testing is projected to go back to previous levels by the end of the 2021 calendar year for the ASX share.
Macquarie has been impressed by the investing that the company has done to improve its technology, which will help the profit margins as the industry gets back to normal.
In the FY21 half-year result, the company reported a 26% decline of English language testing revenue to $158.3 million, total EBITDA fell 33% to $68 million, EBIT dropped 43% to $47.3 million and net profit dropped 45% to $29.7 million. It announced a dividend of 8 cents per share for shareholders.
Management said that it’s encouraging to see the ASX share’s recovery is already underway when comparing the first half of FY21 to the second half of FY20. The company also said that it has through-the-cycle appeal as volumes rebounded with lockdowns and restrictions easing.
According to Macquarie, the IDP Education share price is valued at 57x FY22’s estimated earnings.
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Idp Education Pty Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.