Aspen’s shares outperform the company’s peers |
ASPEN Pharmacare share price has leapt by more than 83 percent in the past five months, a rally that has seen the drug maker outperforming its industry peers.
The stock was trading around R120 a share on the JSE yesterday morning, up from R65 compared to August 20 last year, while its peers have lagged behind, with Adcock Ingram declining by 7.82 percent and Ascendis Health shedding a whopping 73.54 percent during the same period.
Yesterday the share closed 0.76 percent lower at R120.29 on the JSE.
The recent recovery by Aspen’s share price comes after it tumbled by more than 50 percent in 2018 following the company’s move away from its generic pharmaceutical business.
However, despite the recent recovery Aspen’s share price closed 2019 on a negative note, down by around 10 percent.
Aspen has managed to reduce its debt to R39 billion at the end of June last year, down from R53bn, compared to the end of 2018, following the disposal of the Nutritionals business, after it received an amount of R12.3bn from the proceeds.
Nishlen Govender, a portfolio manager at Citadel, said the share price rally could be linked to the stock being oversold in the past.
“Quite frankly, the stock was oversold. At around R65 a share, Aspen was simply too cheap even if one factored the significant balance sheet risk arising from a ballooning debt balance.
“Our valuation captured current operating conditions while taking the additional step of testing different risk scenarios that could have hurt the company further, such as a rights issue to shore up the balance sheet. Even these adjustments left us with a share price close to R100,” Govender said.
He added that balance sheet risk aside, it was clear that Aspen could not continue the recent acquisitive growth that it had become used to, which also worried investors.
“Nevertheless, the company traded at a vast discount to fair value. Management have subsequently taken important steps to sell assets, which included the sale of the company’s infant formula business to French company Lactalis International, and its Japanese unit to Novartis, which have been important to allaying investor fears,” Govender said.
Last year Aspen’s chief executive, Gus Attridge, said the company had put aside the challenges of the first six months and was focused on building its anaesthetics business after it invested on capital projects in geographies like South Africa, France and Germany.
The projects were aimed at building world-class manufacturing facilities to in-source a significant portion of the production for its anaesthetics business.