The freshly listed South32 Ltd (ASX: S32) has silenced its doubters with the stock having skyrocketed more than 12% early in today's session.
After having spun-off from BHP Billiton Limited (ASX: BHP) as a result of overwhelming support from shareholders earlier this month, South32 listed on the ASX at noon yesterday with an opening price of $2.13 and market capitalisation of $11.3 billion, making it one of the biggest spin-offs in living memory.
However, it ended its first day in unspectacular fashion, closing at just $2.05 after having dipped as low as $2.01. Indeed, investors were quick to slam the entity and its lacklustre performance with many labelling it as a disappointment and an immediate sell.
Those who listened to the market's pessimism will be kicking themselves today with the stock having soared to a high of $2.31, up 12.7% on yesterday's closing price and adding more than $1 billion to the company's market value. Notably, BHP Billiton's shares have actually fallen 1.5%, which may indicate that the market is becoming more confident that its spin-off has the potential to deliver superior investment returns.
While its parent entity contends with falling iron ore and oil prices, South32 will focus on reducing costs and improving productivity in the assets that have long been neglected under the management of BHP Billiton. Given that South32 has been allocated a small amount of debt, these costs savings will likely help profits grow significantly, which could ultimately make today's price tag look cheap.
