Spotless Group flags sale of laundries business

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http://www.smh.com.au/business/spotless-group-flags-sale-of-laundries-business-20160530-gp6zk9.html

Spotless Group flags sale of laundries business

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Freshly washed sheets are being ironed at industrial laundry.Freshly washed sheets are being ironed at industrial laundry. Photo: Mario Borg

Spotless has flagged the sale of its laundries unit, a transaction which could raise more than $650 million, analysts estimated.

The disclosure came as the company affirmed year to June earnings guidance in the wake of a sell-off in its shares last week which prompted a query from the Australian Securities Exchange.

The company said earnings are “unlikely to differ materially from its previous earnings guidance” for the year to June, which was for flat earnings before interest, depreciation and amortisation with the net profit to be down 10 per cent.

Of greater importance was the disclosure Spotless may offload its laundries unit, which generates around 10 per cent of group revenues, but which has the fattest margins of any of the group businesses, at around 28 per cent. Even so, revenue growth remains low, analysts said.

The intended sale of the laundries unit follows the acquisition of Prime Laundry last year which is still in the process of being integrated to the group’s laundries unit.

“Stable and cash generative as a business, a possible divestment of laundries at EV/EBITDA multiple of say 7-9 times at a theoretical settlement date of June 30 2016 would suggest a possible price tag of $518-$666 million,” Citi analysts told clients in response to the company’s announcement.

“Reinvestment of proceeds in pursuing top line growth opportunities in facilities services (especially in integrated services) would provide a business model that focuses management time on core outsourcing trends and opportunities.”

In mid-morning trading, Spotless shares were 5 per cent higher at $1.14.

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