Why the Pact Group share price jumped 8% higher today

The Pact Group Holdings Ltd (ASX: PGH) share price is surging higher on Tuesday after announcing asset divestment plans this morning…

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Pact Group Holdings Ltd (ASX: PGH) share price has been a strong performer on Tuesday.

In morning trade the packaging company's shares are up 6% to $2.85. At one stage they were up as much as 8% to $2.91.

This makes it the third-best performer on the All Ordinaries today. Its shares trail only Data#3 Limited (ASX: DTL) and Strike Energy Ltd (ASX: STX).

Why is the Pact Group share price surging higher?

Investors have been buying Pact Group's shares in response to news that it is planning to divest one of its assets.

According to the release, the company has commenced a sale process for its Contract Manufacturing division. Pact has appointed Citigroup to assist it with the matter.

Pact Group's Contract Manufacturing division includes the Jalco, Pascoe's, and Australian Pharmaceutical Manufacturers businesses.

It is a leading supplier of contract manufacturing services in Australia for the home care, personal care, and health and wellness segments. The division reported sales of $372 million and EBITDA of $25 million in the 2019 financial year.

Why is Pact Group selling the Contract Manufacturing division?

Pact Group's managing director and chief executive officer, Sanjay Dayal, explained the rationale behind the sale.

He said: "We have undertaken a detailed strategic review of our business, including a review of our portfolio. Contract Manufacturing is an attractive business that enjoys leading positions in sectors with strong growth potential. However, Pact's success over the longer term is dependent on our ability to deliver organic growth and restore margins in the core packaging business while growing our materials handling and sustainability businesses."

Mr Dayal believes that the simplification of its business will generate stronger returns for shareholders and strengthen its balance sheet.

He explained: "Divesting Contract Manufacturing will simplify the portfolio and sharpen our focus on driving improved returns in the remaining Group. Importantly, divestment will strengthen our balance sheet and improve our financial flexibility."

A further update on the sale process and its strategic review will be provided in February with its half year results.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Data#3 Ltd. 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.

More on Share Gainers

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Share Gainers

3 ASX All Ords shares up 50%+ in March

These ASX shares have been on fire this month. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Share Gainers

Why Mesoblast, Patriot Battery Metals, Sigma, and Zip shares are pushing higher

These shares are having a good session on hump day. But why?

Read more »

Woman looks amazed and shocked as she looks at her laptop.
Consumer Staples & Discretionary Shares

If you'd put $20,000 in this ASX retail stock at the start of 2023, you'd have $134,000 now

This online retailer has executed a remarkable turnaround for its investors.

Read more »

Fancy font saying top ten surrounded by gold leaf set against a dark background of glittering stars.
Share Gainers

Here are the top 10 ASX 200 shares today

It was back to earth for ASX shares this Tuesday.

Read more »