Here are 2 mid-cap ASX shares that could be exciting to own and generate long-term returns with a buy and hold strategy.
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Some mid-cap ASX shares could be interesting ideas to own for the longer-term.
A mid cap share usually has a market capitalisation of between $2 billion and $10 billion.
Here are two ideas:
A2 Milk Company Ltd (ASX: A2M)
A2 Milk is a large infant formula business listed on the ASX. Before COVID-19 came along the company was growing in Asia, North America, Australia and New Zealand.
But there has been significant disruption to the domestic daigou channel because of Australia’s closed borders. There are less visitors from places like China.
A2 Milk has explained that the daigou channel is important for activating other sales channels such as cross border e-commerce (CBEC). The company is going to work hard over the rest of FY21 to reactivate this channel.
However, the mid-cap ASX share is positive about a few parts of the business despite FY21 being far below what the company was originally hoping for.
For example, in China its mother and baby store (MBS) segment is going well. In a recent trading update the company said that its MBS revenue remains “very strong” and it’s expecting revenue growth of more than 40% compared to the prior corresponding period. Its 12-month rolling market value share in MBS was 2.3% at the end of October.
The company said that notwithstanding the channel disruption, it’s still showing strong underlying brand health metrics in China. Its most recent research highlighted trends in lead indicators such as awareness and intention to purchase. It’s continuing to see a positive impact from the marketing investment in activation and brand building activities supported by the ground capability investments it has made over the last year and a half to two years. As a result, A2 Milk is confident about the underlying strengths of the business and will continue its high level of investment in marketing during the rest of the financial year.
Another positive in the update was that its liquid milk businesses in Australia and the USA have performed well through the first half, with both businesses recording strong first half growth compared to the first half of FY21.
At the current A2 Milk share price it’s trading at 23x FY22’s estimated earnings according to Commsec.
Altium Limited (ASX: ALU)
Altium is one of the world’s largest electronic PCB software businesses. The mid-cap ASX share says that Altium Designer is the most widespread professional PCB design tool used by over 100,000 engineers.
At 15 November 2020, Altium 365 – the world’s first digital platform for the design and realisation of electronics hardware – had 7,486 active users and 3,739 active accounts. Both of those measures were up 40% since July.
Altium says that it’s among the fastest growing electronic design automation (EDA) companies with nine consecutive years of double digit revenue growth and an expanding earnings before interest, tax, depreciation and amortisation (EBITDA) margin over the years.
The mid-cap ASX share is debt free and the cash balance continues to grow, whilst paying a steadily rising dividend. In FY20 its cash balance rose 16% to US$93.1 million and the dividend grew by 15% to AU$0.39 per share.
The mid-cap ASX is focused on growing the cloud product, Altium 365. It says that the move is from a position of strength and does not force its customers to change either their licensing model or the way they use Altium’s existing software.
Altium says that the cloud business is its transformation engine and provides unique opportunities for direct monetisation. It can make transaction fees on manufacturing (like an Airbnb model) and/or it can make money from premium services (like an Amazon Prime model).
At the current Altium share price it’s trading at 54x FY22’s estimated earnings according to Commsec.
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Tristan Harrison owns shares of Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.