Australia Markets closed

Orora share price rockets 20% higher after offoading its Australasian Fibre Business

James Mickleboro
Consultant buying ASX shares

In morning trade the Orora Ltd (ASX: ORA) share price has burst higher after announcing the sale of one of its businesses.

At the time of writing the packaging company’s shares are up a massive 20% to $3.22.

What has Orora announced?

This morning Orora announced that it has entered into a binding agreement to sell its Australasian Fibre Business to a wholly owned subsidiary of Nippon Paper Industries.

According to the release, Nippon Paper Industries made an offer which valued the business at enterprise value of $1,720 million. This equates to an EV/FY 2019 adjusted EBITDA multiple of ~11.5 and an EV/adjusted EBIT multiple of ~18.9. Which is higher than Orora’s current trading multiples.

Management believes this fully values the Australasian Fibre Business, especially based on its outlook for the business.

The deal remains subject to customary conditions for a transaction of this nature, including regulatory approvals. As such, completion is not expected to occur until early in 2020. The estimated net gain after costs and tax is ~$225 million, which will be recognised as a significant item.

What will Orora do with these funds?

Management advised that it expects to receive net cash proceeds from the transaction, after taxes, transaction costs, restructuring costs and customary closing adjustments of $1,550 million.

It intends to return around ~$1,200 million of this to shareholders through capital management initiatives. Though, the company has not yet decided which will be the most efficient method. I suspect it could be a combination of share buybacks and dividends.

Orora Chairman Chris Roberts said: “The Nippon Paper offer represents compelling value for shareholders, reflecting a full price for the Australasian Fibre Business which has reached maturity under Orora ownership and which will now benefit from the synergies and other value enhancements available to Nippon Paper as a strategic acquirer.”

“Orora will now focus on its Australasian Beverage and North American businesses which both have a strong long term growth outlook and provide opportunity for superior returns on capital for shareholders,” he added.

Elsewhere in the industry, fellow packaging shares Amcor PLC (ASX: AMC) and Pact Group Holdings Ltd (ASX: PGH) are both trading higher in early trade.

The post Orora share price rockets 20% higher after offoading its Australasian Fibre Business appeared first on Motley Fool Australia.

Whilst I think this is a good move by Orora, I'm not convinced that its shares are a buy at these levels. Especially given the industry's challenging outlook. In light of this, I would sooner buy these top growth stocks instead.

NEW. Five Cheap and Good Stocks to Buy in 2020….

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield...

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.


More reading

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019