Is this a $500 million reason to buy Spotless Group Holdings Ltd?


What: Opinion has been divided for some time as to the outlook for facility services and laundry operator Spotless Group Holdings Ltd (ASX: SPO).

Investors in the initial public offering (IPO) are no doubt bewildered at the approximate 30% decline in share price since the stock first hit the ASX around two years ago.

Meanwhile, cynics of the float say the IPO had all the trademarks of a private equity “flip job”.

Conversely, value investors are sniffing around weighing up the downside risks versus the potential upside rewards on offer at the current price of $1.16 a share.

So What: Value investors received a sign on Monday that perhaps the rewards do outweigh the risks with Spotless providing a market update which contained two important pieces of information.

Firstly, the group affirmed that it was on track to meet its previous earnings guidance for the current financial year.

Secondly, the group noted that parties had shown interest in possibly acquiring its Laundries business.

Now What: According to research from analysts at Macquarie Group, a sale of Spotless’ Laundries division could fetch between $400 million to $500 million pre-tax. Analysts at Citi are even more bullish, slapping a price tag of between $518 million and $666 million on the division (source: Australian Financial Review).

With a market capitalisation of $1.25 billion but a heavy debt load as well, a sale could potentially go some way to unlocking the inherent value of the group’s largest and most important division, Facility Services.

If you are interested in quality dividend shares, then I would recommend this top dividend share instead. A strong yield and potential share price gains make this a great investment idea in my opinion.

Our Top Dividend Stock for 2016 has a yield that could be even more appealing than Spotless' forecast 6% dividend yield!

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a fat fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool contributor Tim McArthur has no position in any 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 Bruce Jackson.

HOT OFF THE PRESSES: My #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.