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Why the Asaleo Care share price rocketed 33% higher today

The Asaleo Care Ltd (ASX: AHY) share price has been a big mover in early trade on Thursday.

At the time of writing the personal care products company’s shares are up a massive 30% to 81 cents. At one stage its shares were up approximately 33% to 83 cents.

Why is the Asaleo Care share price rocketing higher?

Investors have responded positively to news that Asaleo Care has agreed to sell its struggling Australian Consumer Tissue business to Solaris Paper.

According to the release, under the terms of the transaction, Solaris Paper has agreed to pay $180 million for the business, resulting in a book profit on sale of between $15 million and $20 million for the company.

The Australian Consumer Tissue business includes leading tissue brands Sorbent toilet and facial tissue, Handee Ultra paper towel, and Deeko serviettes and disposable tableware.

The company advised that it will retain its Consumer Tissue businesses in New Zealand, Fiji, and the Pacific Islands

Asaleo Care chairman, Harry Boon, explained why the company decided to sell the business.

He said: “The decision to divest the Australian Consumer Tissue business flows from the comprehensive strategic review initiated by the Company in the first half 2018. This transaction represents a win-win, with significant strategic value for both companies, and positions both well for future growth. The sale will enable us to concentrate on our core, higher margin and less capital-intensive businesses in Personal Care and B2B, and continue to innovate and invest in our brands for long-term growth.”

CEO and managing director, Sid Takla, echoed this statement, adding that the “core Personal Care and B2B brands and businesses offer higher margins, stronger sales growth and less volatile returns.”

Should you invest?

I think this was a great decision by management and I’m not surprised to see its shares rally higher on the news.

The company’s earnings have been on a downward trajectory for some time, but this could be just what it needs to return it to growth.

While I’m not a buyer of its shares just yet, I’ll certainly be keeping a close eye on its progress over the next 12 months.

In the meantime, I think Coles Group Ltd (ASX: COL) and Super Retail Group Ltd (ASX: SUL) could be worth a look.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Super Retail Group Limited. 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.

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