As investors turn their attention to 2015, one of the biggest floats set to occur on the ASX this year is the $18 billion demerger of BHP Billiton Limited's (ASX: BHP) aluminium, silver, zinc and nickel assets (amongst others) into the uniquely named 'South32'.
The demerger will leave BHP's board and management without the distraction of its smaller business units and will allow the mining giant to focus exclusively on its mega-assets of iron ore, petroleum, copper and coal.
Whether you already own shares in BHP and hence are set to receive an allocation of South32 shares or not, there are a number of good reasons to consider holding the stock in your portfolio.
Positive Outlook
The post-split BHP will indeed hold some mega-assets, however the underlying commodities which shareholders will be exposed to are currently at multi-year lows and with a depressed outlook. In contrast, the outlooks for many of the commodities which are expected to be housed within the South32 business have more positive price outlooks. According to Deutsche Bank, base metal prices will begin to improve in 2015 thanks to tight supplies, meanwhile bulk commodity prices will remain weak with the oversupply situation taking a few years to even out.
Spin-offs have historically done well
There is a long history of solid out-performance over the first few years of listed life of businesses cast-off from their parent company. These are recent examples:
Document management business Recall Holdings Ltd (ASX: REC) was demerged from its parent Brambles Limited (ASX: BXB), which has allowed Brambles to focus on its core business of pooling solutions. The demerger occurred in December 2013 and Recall's share price has soared 74% and also attracted a takeover offer since then. Meanwhile, Brambles' share price has also done well – up 22%. In both instances the stocks have smashed the returns from the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) which has added 7% in that time.
Orora Ltd (ASX: ORA) was demerged from packaging giant Amcor Limited (ASX: AMC) in December 2013 and since then Orora's share price has gone on to rally 72%. Amcor's share price has also gained a very healthy 27% meaning both stocks have well-and-truly beaten the 4% gain in the S&P/ASX 200 over the period.
