Breaking out of confinement
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.