A messy road ahead
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.