Search­ing for a boost in China

Aspen’s share price took a knock af­ter the one-off de­val­u­a­tion of its Venezue­lan busi­ness in 2015. The com­pany is now eye­ing the Chi­nese mar­ket for low-cost gener­ics, which po­ten­tially of­fers huge growth op­por­tu­ni­ties.

Finweek English Edition - - MARKET PLACE - Ed­i­to­rial@fin­week.co.za Mox­ima Gama has been rated as one of the top five tech­ni­cal an­a­lysts in South Africa. She has been a tech­ni­cal an­a­lyst for 10 years, work­ing for BJM, Noah Fi­nan­cial In­no­va­tion and for Stan­dard Bank as part of the re­search team in t

as­penPhar­ma­care, the largest maker of generic drugs in Africa, was a dar­ling stock for in­vestors for many years. Pre­vi­ously seen as over­val­ued, Aspen only lost ground af­ter peak­ing at 45 000c/share in 2015.

The group has gone through some change, no­tably end­ing its col­lab­o­ra­tion with Glax­oSmithK­line (GSK) in its sub-Sa­ha­ran African op­er­a­tions. GSK, a long-time ma­jor share­holder of Aspen, started to di­vest its hold­ing in 2013, sell­ing off its last shares in Aspen in Septem­ber last year.

Aspen’s sights are now set on rapid ex­pan­sion in China to dis­trib­ute low-cost generic phar­ma­ceu­ti­cals. With an age­ing and large pop­u­la­tion, a pro­lif­er­a­tion of life­style dis­eases, no­tably di­a­betes, and ris­ing house­hold in­come lev­els, the Chi­nese health­care mar­ket po­ten­tially of­fers huge op­por­tu­ni­ties for growth. A 2015 study by Deloitte es­ti­mated that an­nual ex­pen­di­ture on health­care (in­clud­ing spend­ing on drugs) is pro­jected to grow at an av­er­age rate of 11.8% a year from 2014 to 2018, to reach $892bn by 2018.

But de­spite Aspen’s strong man­u­fac­tur­ing ca­pa­bil­ity, suc­cess­ful in­ter­na­tional ac­qui­si­tions, se­cure bal­ance sheet and an ex­cel­lent global rep­u­ta­tion, the share price is strug­gling to re­bound. It said in a trad­ing state­ment that it ex­pects head­line earn­ings per share (HEPS) for the six months to end De­cem­ber to be be­tween 49% and 57% higher than in the com­par­a­tive pe­riod in 2015. The sig­nif­i­cant in­crease is at­trib­ut­able to the one-off neg­a­tive ef­fect in 2015 aris­ing from the de­val­u­a­tion of Aspen’s Venezue­lan busi­ness, which cost the group R870m, it said.

Earn­ings per share (EPS), which ex­cludes one-off items, will be 13% to 17% lower, it warned. This de­cline is mainly due to the pos­i­tive ef­fect of sig­nif­i­cant cap­i­tal prof­its re­alised in the 2015 in­terim pe­riod aris­ing from the dis­posal of non-core busi­nesses and prod­ucts, Aspen said. The group’s re­sults were set to be re­leased on 9 March, af­ter this is­sue of fin­week went to print.

Tech­ni­cal view:

Aspen’s share price fell the most in more than two years in Septem­ber last year, when it said the im­pact of sell­ing the two phar­ma­ceu­ti­cal port­fo­lios and a one-time cur­rency-re­lated loss in Venezuela would weigh on earn­ings. The share price showed indi­ca­tions of a re­cov­ery at the be­gin­ning of the year – trig­ger­ing signs of a change in in­vestor sen­ti­ment – but en­coun­tered re­sis­tance at 31 700c/share, form­ing a lower top, which is a bear­ish sign. A head-and-shoul­ders pat­tern could be in the mak­ing, with the fi­nal shoul­der con­struct­ing. Downside through the neck­line would ex­tend losses to 18 000c/share. Go short: With the three-week rel­a­tive strength in­dex (RSI) in over­sold ter­ri­tory, a near-term re­cov­ery is un­der­way. How­ever, fail­ure to trade be­yond 31 700c/ share should sound the alarm bells. The fi­nal shoul­der would still be form­ing, and downside to 23 300c/share would be pos­si­ble. Breach­ing that level would con­firm the bear­ish pat­tern and pos­si­bly kick-start another bear­ish leg to­wards 18 000c/share. Go short if Aspen re­cov­ers but strug­gles to trade above 31 700c/ share – and in­crease po­si­tions be­low 23 300c/share. Go long: Up­side above 31 700c/ share could see Aspen re­claim its losses to ei­ther its ma­jor re­sis­tance trend­line or the 35 000c/share level. Aspen would aban­don its long-term bear trend above 39 100c/share. Stay long if up­side per­sists through 35 000c/ share. A 100% re­trace­ment to the all-time high at 44 870c/ share would be com­pleted upon a pos­i­tive breakout con­firmed above 39 100c/share.

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