ON 27 FEBRUARY the share price of pharmaceutical group Enaleni took a hit, dropping nearly 9% to 465c/ share. In retrospect the reason seems clear – Enaleni had just put out a trading update with what it says were incorrect figures. These were corrected quickly through the issue of a revised trading update, but the damage had already been done to the share price.
The first update said headline earnings per share were expected to increase by 110% to 120%. The revision said the increase would actually be between 170% and 180%. Big increases, but apparently the first forecast disappointed investors expecting large numbers to continue coming through from the integration of Cipla Medpro, the generics manufacturer Enaleni bought at the end of 2005 for R1,2bn. CEO Trevor Edwards tells us the first release was just a mistake. “We had the figures, they were checked by the financial director and checked again. Twenty minutes later we realised there was a mistake.”
Fine. Expectations were that the revised update would see the share price recover. It hasn’t, last week the share was a bit lower at 455c/share. Why?
Well, the decline in Enaleni’s price was followed almost immediately by two other market-moving events. Alan Greenspan rumbled on about recession, the Chinese market cracked, other Asian markets tumbled and the JSE caught the whiplash.
At home, larger rival Aspen put out results that were not met too enthusiastically, probably putting a general dampener on pharmaceutical stocks. This could be keeping a cap on Enaleni’s share price.
Fundamentals look good. The company is spending R90m upgrading its manufacturing facility, partly to meet international compliance standards but mainly to increase capacity to meet volumes expected to increase by four times.
The upgrade will also place Enaleni in a better position for Government tenders for generic drugs that take place later this year.
On that basis, share weakness now could be a buying opportunity.