Changes at Aspen cool down the profits
Earnings are expected to be good — but less spectacular
AFTER a period of stellar growth, earnings from Africa’s largest generic drugmaker, Aspen Pharmacare, are expected to cool in its full-year numbers this week because of restructuring.
“The earnings numbers will not be poor, but they will not be as exciting as we have seen in the past because of the restructuring that they are going through,” said Singa Gungqisa, retail analyst at Vunani Private Clients.
The company has been selling some noncore assets to raise funds for future acquisitions, and with its good distribution and manufacturing assets the share price “will be able to weather the storm that we are seeing now”, Gungqisa said.
This week, Aspen said it expected full-year annual earnings per share to be 6% higher and, excluding items, to rise 17%.
The company’s market capitalisation has increased from R32-billion in 2010 to R153-billion this week.
From its January high for the year, the stock has fallen 24% to its mid-week level.
The weak rand has put pressure on the company, which produces its drugs by importing some ingredients.
Adding to that is the incurred US-denominated debt, which will probably soar as Aspen will have to pay more interest.
“Over the past eight months they have been paying slightly more for the cost of goods than they otherwise would have if the rand was stronger,” Gungqisa said.
The rand has weakened more than 16% against the dollar this year as investors dump emerging market assets in favour of developed assets such as the dollar.
Another issue affecting Aspen was the impact on its margins by the new pharmaceutical pricing guidelines put in place by the Department of Health that capped the business from overpricing drugs, said Alex Comer of London-based Equity Research.
However, even with these constraints the business of healthcare is still on the rise worldwide.
The market has had high ex- pectations of growth for Aspen Pharmacare.
Bloomberg data show that 58% of analysts say investors should buy into the business, and 25% lean towards holding the shares.
Even though Aspen Pharmacare is nowhere near competing with giants such as Pfizer, Gungqisa said it was the ninth-biggest pharmaceutical company in the world and “there are still big opportunities to come in the pharmaceuticals industry”.
About 20% of Aspen’s revenue is from South Africa, and the remainder from Africa, Latin America and Asia.
“It’s becoming a rising star,” Gingqisa said.
The company’s spate of mergers and acquisitions “should increase earnings materially and diversify geographic and product exposure”, researcher Comer said in a note earlier in the year.
The earnings numbers . . . will not be as exciting as we have seen
Comment on this: write to letters@businesstimes.co.za or SMS us at 33971 www.timeslive.co.za