A lifeline for struggling tissue and personal products maker Asaleo Care with the news it will sell will sell its low margin Australian consumer tissue business sending the shares surging 46% to, 91 cents and the close.
It didn’t take long for the market to absorb the recent downbeat guidance by Asaleo Care (ASX:AHY), which makes and sells tissues, nappies and female hygiene products under brand names like Sorbent, Libra, and Handee. It rapidly wiped around 40 per cent off its share price.
The company will sell its Australian consumer tissue business for $180m. As this business is losing money Citi believes this is a good decision for shareholders. The broker lifts estimates for earnings per share by 35% in FY19 and 23% in FY20.
Asaleo’s pre-released result and revised guidance implied a -35% drop in earnings — exactly the share price fall on the day. The broker anticipates further earnings declines in 2019 due to sustained higher pulp prices and an ongoing inability to raise product prices.
Asaleo has issued a profit warning, downgrading 2017 guidance to $70-75m from $85-95m. Competition in Feminine Care is to blame, forcing Asaleo to exit fixed everyday pricing deals with supermarkets. The exit should provide for a return to growth, the broker suggests.