2 ASX shares rated as strong buys by brokers

The 2 ASX shares in this article are rated as buys by several brokers that cover stocks. One pick is Reject Shop Ltd (ASX:TRS).
The post 2 ASX shares rated as strong buys by brokers appeared first on The Motley Fool Australia. –

There are some ASX shares that a number of brokers like and have rated as ‘buys’

It can be quite hard to find good businesses that are trading at a good price. One investor might say that BHP Group Ltd (ASX: BHP) is a good buy, whilst another might say that Woolworths Group Ltd (ASX: WOW) is the share to buy.

Brokers are constantly looking at businesses and share prices, thinking about what would be a good investment. There are various brokers out there like Bell Potter, Macquarie Group Ltd (ASX: MQG) and UBS that provide different recommendations about shares.  

With that in mind, these ASX shares are liked by more than one broker. Of course, this still isn’t a guarantee of success – they could all be herding together.

Reject Shop Ltd (ASX: TRS)

This ASX share is liked by at least three brokers.

In FY20 the discount retailer reported that its sales grew by 3.4% with comparable store sales growth of 3.5%. In the first half comparable sales rose 0.5% and in the second half they rose 7.1%.

Before AASB 16, FY20 earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 30.1% to $23.7 million. It generated $4.5 million of earnings before interest and tax (EBIT), up from a loss of $23.3 million in FY19, and it made $2.7 million of net profit after tax (NPAT), up from a $16.9 million loss in FY19.

Reject Shop made free cashflow of $61.6 million in FY20, up from an outflow of $1.9 million in the prior corresponding period. The company ended the financial year with $92.5 million of cash.

In FY21 the ASX share’s board is considering whether to return to paying dividends.

It said at its AGM that it is/was considering exiting rental leases where the occupancy costs are above the benchmark if the rent can’t be renegotiated lower. It has also been working on improving its inventory. Reject Shop has been reducing the number of different items (SKUs – stock keeping units) being sold. At the time of the AGM, management said that the reduction of SKUs was already increasing sales per SKU, which is resulting in better availability for customers and improves buying power.

Another benefit of the improved inventory is that it will enable opportunities for the ASX share to standardise ways of working through the supply chain and then into stores.

Once the company’s cost base is set at a sustainable level, Reject Shop expects to pursue store network expansion and e-commerce. It’s currently trialling an e-commerce offering.

Charter Hall Group (ASX: CHC)

Charter Hall is an ASX share that owns and manages real estate for investors. It invests across the real estate spectrum of sectors including office, industrial, retail and social infrastructure.

It operates a number of listed and unlisted funds including Charter Hall Retail REIT (ASX: CQR), Charter Hall Long WALE REIT (ASX: CLW) and Charter Hall Social Infrastructure REIT (ASX: CQE).

Charter Hall says that it has 1,300 properties, with $45 billion of funds under management (FUM), an occupancy rate of 97.5% and a weighted average lease expiry of 8.9 years.

The business has been regularly making acquisitions for its funds to increase FUM. For example, Charter Hall recently bought the flagship David Jones store in Sydney for $510 million, with the parent business retaining 25% ownership. The purchase price reflects a 5% initial yield based on the initial annual net rent of $25.5 million.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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.

The post 2 ASX shares rated as strong buys by brokers appeared first on The Motley Fool Australia.

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