What’s Going on with the Asaleo Care Share Price?

What happened to the Asaleo Care share price?

From the start of 2016, personal hygiene manufacturer Asaleo Care [ASX:AHY] traded in only one direction. And that was up. From a low of $1.45 in January, shares climbed as high as $2.33 my mid-July — a staggering 60% move in just six months.

All was going well, until it released its preliminary results in late-July. Boom! The share price fell a massive 36% in just one day.

Why did Asaleo Care do this?

Asaleo operates in one of the most competitive industries there is — personal hygiene. Think paper towels, tissues, toilet paper and nappies. All are essential items, with fierce competition for space on supermarket shelves.

Asaleo was hit by two major issues. First, competitor discounting which led to a 4.3% drop in revenue. Maybe not such a big deal. But it was the second factor that caused most of the damage. Pulp costs — a key product input— increased substantially off the back of a lower dollar. This led to a massive 23.4% fall in statutory NPAT.

What now for Asaleo Care?

Since the massive drop, shares in Asaleo have continued to drift lower. With the full year guidance released with the results, it’s hard to see investors rushing back in. Underlying NPAT was updated from a ‘steady’ year-on-year forecast, to an estimated decline of 15% — a massive disappointment.

And on EPS (earnings per share), from ‘Low to mid-single digit growth’ to a decline of approximately 9%. Another big hit. Asaleo is fighting it out on two fronts — price deflation and fierce competition on one side, and escalating costs on the other. Until there is proof of this reversing, investors will be giving Asaleo a wide birth.

Matt Hibbard,
Money Morning

Money Morning Australia