Hot Money Monday: Asset disposal can boost stock prices; here are the most recent ASX deals

Asset sales can boost stock prices by improving focus on core operations
Reducing debt with sale proceeds cuts interest costs and lowers financial risk
Here are the ASX companies to have announced asset sales in the past couple of weeks

The market often views the news of an asset disposal positively, as it can often boost a company’s stock price for several reasons.

First, the sale of non-core or underperforming assets allows a company to sharpen its focus on core operations, which can lead to longer term profitability.

Second, using the proceeds to reduce debt lowers interest expenses and financial risk, enhancing the company’s financial health.

And third, increased cash flow from asset sales can provide the company with more flexibility to invest in growth opportunities, buy back shares, or pay dividends – all of which can positively impact the stock price.

Such disposals often signal to investors that the company is making strategic decisions to unlock value, which can enhance market perception and drive up the stock price.

In the past couple of weeks, several ASX companies have announced they are selling off assets.

These include…

Sims Limited (ASX:SGM)

Last week, metals recycling company Sims announced a binding deal to sell its UK Metal (UKM) business to Unimetals Group for about £195 million (about AUD $378 million).

This sale concludes the strategic review the company began in November 2023.

The UK Metal business represented about 14% of Sims Metal’s sales in FY24.

After this sale, Sims’ Metal portfolio will include operations in Australia, New Zealand, North America, and a 50% stake in the SA Recycling Joint Venture.

Sims’ CEO, Stephen Mikkelsen, said that after a thorough review of options for UKM, the sale was deemed the best outcome for shareholders.

“We believe that divesting UKM and Circular Services unlocks significant value for shareholders, which is not reflected in the current share price,” said Mikkelsen.

“The proceeds will initially be used to strengthen our balance sheet and, over the medium term, we will look to balance the requirement of balance sheet strength and flexibility, with growing the refocussed business, and returns to shareholders.”

Fletcher Building (ASX:FBU)

Fletcher announced last week that it was selling its Australian plumbing supplies business, Tradelink, to Metal Manufactures for $170 million.

The deal involves an upfront cash payment of $160 million, with an additional $10 million paid later based on certain conditions.

Fletcher decided to divest Tradelink following a strategic review, concluding that it does not align with the company’s long-term goals.

Acting CEO Nick Traber said he was satisfied with the sale.

“The sale will enable us to concentrate our efforts on the performance and growth of Fletcher Building’s core businesses,” Traber said, adding that the company will use the sale proceeds to pay down debt.

Enlitic (ASX:ENL)

Enlitic has announced that it’s selling its CXR Focal Opacity technology to Clairvo Technologies for $500,000.

CXR Focal Opacity is a chest x-ray technology developed by Enlitic that helps detect abnormalities.

As Enlitic’s strategy shifts to focus on its core competencies, which are centred around data standardisation, this technology is no longer a primary focus for the company.

By selling this non-core asset, Enlitic aims to better allocate its resources towards strategic growth areas, focusing on its core strengths.

Clairvo, which had previously distributed the CXR Focal Opacity technology in Japan on behalf of Enlitic, will now own it outright.

The agreement includes the transfer of all rights to CXR Focal Opacity and grants Clairvo perpetual non-exclusive licenses for related patents and intellectual property necessary for using the technology.

Clairvo is a wholly owned subsidiary of Japan’s giant, Marubeni Corporation, which also holds a significant share in Enlitic.

Lithium Energy (ASX:LEL)

LEL has recently announced that its shareholders have overwhelmingly approved the sale of its entire stake in the Solaroz Lithium Brine Project.

At a recent General Meeting, about 99% of the votes were in favour of the sale.

The company will sell its 90% interest in the Argentinian company Solaroz S.A., which owns the Solaroz Project, to CNGR Netherlands New Energy Technology for a total of $63 million in cash.

This amount also covers a loan that Solaroz S.A. owes to Lithium Energy.

As part of the deal, Lithium Energy has already received a US$1.8 million deposit, with the remaining US$61.2 million to be paid upon completion of the transaction.

LEL’s executive chairman, William Johnson, said the board has determined that it is in the best interest of shareholders to sell the company’s interest in the Solaroz Project.

He noted that not only did the sale price reflect the significant value that LEL has created at Solaroz since the company was listed in May 2021, it will also remove the funding and development risks associated with the project.

“Post completion, the company will have the capital required to consider investment opportunities in the battery minerals area. The board will also give consideration to a potential distribution to shareholders,” Johnson said.

At Stockhead we tell it like it is. While Lithium Energy is a Stockhead advertiser at the time of writing, it did not sponsor this article.