Why the Downer (ASX:DOW) share price is outperforming today

The Downer EDI Limited (ASX: DOW) share price rallied this morning after it announced the sale of its blasting business for $62 million.

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The Downer EDI Limited (ASX: DOW) share price rallied this morning after it announced the sale of its blasting business for $62 million.

Shares in the engineering group jumped 2.1% to $5.31 at the time of writing when S&P/ASX 200 Index (Index:^AXJO) gained 0.4%.

In case you didn’t notice, ASX stocks have been on a bit of a divesting spree as they look for creative ways to unlock value during these uncertain times.

Downer share price jumps on divestment news

Downer’s latest move seems to have worked. Its peers are lagging behind today with the NRW Holdings Limited (ASX: NWH) share price inching up 0.4% to $2.57 and Seven Group Holdings Ltd (ASX: SVW) share price gaining 1.2% to $22.32.

Downer is streamlining its business to focus on infrastructure construction work and to move away from mining. The sale of Downer Blasting Services to a subsidiary of Chilean company Sigdo Koppers Group is aligned to its strategic vision.

“The sale of Downer Blasting Services follows the sale of the Snowden consulting business and also our share in the RTL Mining and Earthworks joint venture,” said Downer’s chief executive Grant Fenn.

“We are in active discussions with a number of interested parties in relation to the rest of the Mining portfolio.”

Other ASX stocks looking to divest assets

The latest divestment comes at a time when state and federal governments are pumping billions into building infrastructure as a way to stimulate our COVID‐19-stricken economy.

Downer isn’t the only one divesting or spinning off underperforming businesses. The Boral Limited (ASX: BLD) share price also bounced on expectations that its new chief will be taking a broom to the group’s problematic US assets.

The Link Administration Holdings Ltd (ASX: LNK) share price is also another recent example, while Lendlease Group (ASX: LLC) is also getting out of mining services.

Other ASX divestment candidates

It’s also worth noting that the Incitec Pivot Ltd (ASX: IPL) share price is outperforming this morning too with an over 2% gain to $2.27. The explosives and fertiliser group is also believed to be exploring divestment options.

Other stocks that may be looking to shed assets include the Suncorp Group Ltd (ASX: SUN) share price and Perpetual Limited (ASX: PPT) share price.

I would add the AMP Limited (ASX: AMP) share price to the list if not for the fact that there’s a takeover offer for the entire group hanging over the embattled wealth manager.

Divestments and spin-offs are a surer way of creating shareholder value as opposed to mergers and acquisitions (M&As). For this reason, it may be worthwhile keeping an eye out for such transactions.

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Brendon Lau owns shares of AMP Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia has recommended Link Administration Holdings 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.

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