A messy road ahead

Finweek English Edition - - Marketplace -

The mar­ket did not like Aspen’s re­sults for the year to end-June. The stock was down over 30% in two days, trad­ing be­low R200 for the first time in over five years. There are a lot of con­cerns, like sell­ing its in­fant for­mula busi­ness for un­der R1bn when ex­pec­ta­tions were that it would fetch be­tween R1bn and R1.5bn. Also: Why are they sell­ing? In the re­sults for June 2015, Aspen had two im­por­tant com­ments on the busi­ness: “The key fo­cus ar­eas of branded phar­ma­ceu­ti­cals and in­fant nu­tri­tion­als both showed pos­i­tive growth” and “The Group has been seek­ing op­por­tu­ni­ties to ex­pand its in­fant nu­tri­tion­als busi­ness.” Yet Aspen has sold it. Debt also re­mains very high and growth is slow­ing, even if cur­rency moves are stripped out. Over­all this is a ma­tur­ing busi­ness with a lot of debt. While a his­toric P/E ra­tio of around 13 times may seem cheap, I would cau­tion against the stock. I have long writ­ten about my dis­like for health stocks, Aspen in­cluded, and the tran­si­tion from a fast-grow­ing com­pany to ma­ture stock laden with debt, is, as we’re wit­ness­ing, go­ing to be messy.

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