Break­ing out of con­fine­ment

Finweek English Edition - - MARKETPLACE HOUSE VIEW - Ed­i­to­rial@fin­week.co.za

Af­ter a year-long cor­rec­tion from an overex­tended po­si­tion, Aspen Phar­ma­care has re­cently bro­ken out of its bear­ish con­fine­ment and looks set to em­bark on a new bull trend. Aspen, which is ranked among the top five generic phar­ma­ceu­ti­cal pro­duc­ers glob­ally, sup­plies branded and generic phar­ma­ceu­ti­cals in more than 150 coun­tries, as well as consumer and nu­tri­tional prod­ucts.

Renowned for its re­silience in tough eco­nomic times, its rand hedge qual­i­ties also make it an ex­cel­lent JSE-listed in­vest­ment for off­shore ex­po­sure, with­out af­fect­ing in­vestors’ off­shore al­lo­ca­tions.

The group is also on track to de­liver its tar­geted R2.5bn in ad­di­tional earn­ings be­fore in­ter­est, tax and amor­ti­sa­tion (EBITA) from a num­ber of projects that are aimed at de­liv­er­ing syn­er­gies from re­cent ac­qui­si­tions in the 2019 fi­nan­cial year, Aspen said. Th­ese projects in­clude low­er­ing the cost of goods for the anti-co­ag­u­lant port­fo­lio, im­prov­ing mar­gins in the in­fant nu­tri­tion­als busi­ness, bring­ing new man­u­fac­tur­ing ca­pac­ity and tech­nolo­gies on­line, build­ing the third-party ac­tive phar­ma­ceu­ti­cal in­gre­di­ents (API) busi­ness and lever­ag­ing ac­quired in­tel­lec­tual prop­erty, it said. How­ever, sen­ti­ment sur­round­ing Aspen’s share price re­mains mixed. Some in­vestors be­lieve it is still over­priced, with its P/E ra­tio cur­rently sit­ting at 32 times. (Ri­val Ad­cock In­gram, for ex­am­ple, trades at 22.7 times.) Oth­ers see Aspen as a growth­value stock, and find cur­rent lev­els at­trac­tive. Of the four an­a­lysts who have up­dated their rec­om­men­da­tions on the stock fol­low­ing the re­lease of its in­terim re­sults early in March, three rate the stock a buy, and one a sell. I be­lieve Aspen is out of the rut – show­ing signs of po­ten­tially re­cov­er­ing all its losses.

How to trade it: Above 32 700c/share, Aspen is an at­trac­tive buy. Long po­si­tions could be in­creased above 34 700c/share, as gains to 39 100c/share could en­sue – where po­si­tions must be re­vised. The up­trend will be­come stronger above 41 595c/share, po­ten­tially retest­ing the 44 870c/share all­time high. But be­fore that, a near-term pull­back may be un­der­way. Sup­port held above 26 510c/share should ex­tend the cur­rent up­trend to prior highs.

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