Should investors buy Brambles or Recall?

Global pallet and pooling logistics company Brambles (ASX: BXB) is today trading minus the Recall documents storage business, having implemented a demerger that has resulted in Recall Holdings (ASX: REC) listing as a separate company.

The stated reason for the demerger was to enable Brambles to concentrate on opportunities within its Pooling Solutions businesses of CHEP and IFCO, while allowing Recall to have a dedicated information management focus.

Recall offers three primary services: Document Management Solutions, Secure Destruction Services and Data Protection Services. According to management, Recall has strong market positions across 23 countries; stable and recurring revenue streams, strong operating cash flows to support dividends and investment, growth prospects in developed and emerging countries, and a sound balance sheet with net debt of US$500 million.

While the growth opportunities of the Recall business are generally expected to be lower than those for Brambles, at the right price there are a number of appealing investment attributes to Recall.

Brambles isn’t the only company to be utilising a demerger process at present, with global packaging giant Amcor (ASX: AMC) yesterday receiving shareholder approval to demerge its Australasia and packaging distribution business into a separately listed entity to trade as Orora (ASX: ORA). The listing of Orora is scheduled for 18 December.

Foolish takeaway

While every investment opportunity needs to be evaluated on its own merits, there is some evidence that suggests shareholder value is created by the splitting of companies along operational lines to allow management to focus more intently on one particular business line.

There is also some evidence that a buying opportunity emerges soon after an ‘unloved’ demerged business begins to trade as a separate entity due to the uncertainty and volatility which can accompany a demerger.

Given Recall’s management is confident of delivering growth in revenues and underlying profits in 2014, investors should consider adding Recall to their watch list as a near-term buying opportunity could present itself.

Meanwhile, Brambles remains a very high quality business with solid long-term prospects and now a more focused management team that doesn’t have the distraction of the Recall business.

Here’s a rock solid dividend idea

Discover The Motley Fool's favourite income idea for 2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2014."

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

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.