CONSENSUS RATING: BUY
listed healthcare stock, Aspen has grown phenomenally since its listing on the JSE in 1998, growing into a group with a presence in 47 countries and a market capitalisation of R161bn. Despite trading at a P/E ratio of 31, many analysts remain bullish on the stock, with six out of eight, polled by INET BFA, rating it a buy.
Geographically diversified, Aspen i s becoming l ess dependent on SA, with less than a quarter of its R31.4bn revenue last year coming from the local market, down from more than a third in 2013.
Its share price has come under pressure in recent months, with GlaxoSmithKline selling off half its 12.4% stake in Aspen and a weaker rand against the dollar and euro – a substantial part of its cost base is in these currencies – providing headwinds. “That’s keeping a lot of investors on the back foot,” says John Thompson, analyst at Investec Asset Management.
I n addition, Aspen i s currently “reasonably heavily geared” following its acquisition spree, with some of its debt denominated in dollars, and will “need to tread carefully” on the debt front, Thompson said. Aspen announced the sale of a part of its local business to Litha Pharma for R1.6bn on 11 May as it exits non-core businesses to streamline its business.
From an operational perspective, analysts will keep an eye on its move into infant nutrition, through a deal with Nestlé in Latin America, which is seen as lucrative given the high-margin nature of the business and access to growing markets. It is also focusing heavily on building its anticoagulant medicines (drugs that work to prevent the clotting of blood).
“It ’s an area that has been neglected by a number of Aspen’s peers,” Thompson says. “Stephen [Saad, Aspen CEO] has been buying businesses, acquiring access to markets and is trying now to build some decent economies of scale in this market. Secondly, they are working backwards into the production chain to manufacture these drugs in the most efficient way. It is fraught with risk: there is regulatory risk, financial risk – they’ve put a lot of money into it, and competitive risk,” for example from India’s Dr Reddy’s, Thompson says.
From an investor’s perspective, the question is whether, judging the risk, Aspen’s management team can pull this off. The premium at which the share is trading shows that the market believes so.