Finweek English Edition - - COVER - South Africa’s big­gest


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.

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