Aspen: That’s what happens when the drugs stop working
Amid all the hysteria about Aspen Pharmacare, there may well be a buying opportunity. If you dare, that is
Ooh la la, as the highly combustible goal scorer, thespian and amateur philosopher Eric Cantona may once have said. There’s little the market hates more than a surprise on the downside, which makes analysts look dumb and shows their carefully constructed acres of Excel to be marginally less useful than a haruspex’s guide to a sheep’s liver. Trust, and the carefully nurtured relationship with management that may have taken years to build up, evaporate in an instant.
The net result tends to be that the stock in question is given a truly biblical hammering.
Aspen’s share price has been heading steadily downwards since it peaked in early 2015, but it has rarely seen a fall such as the one unleashed when it released its interims.
The big concern was the sheer size of the company’s debt mountain, with net debt up to R53.5bn, a level that would have many an investor reaching for some of the company’s more robust pharmaceuticals.
The sale of its nutritionals business to the Lactalis group is still awaiting regulatory approval from no less an institution than New Zealand’s Overseas Investment Office, and it is hoping for approval by the end of May so that the proceeds can pay down some of the borrowings.
A further worry is that Aspen will be forced to sell other decent assets at suboptimal prices to shore up the balance sheet, and there’s no doubt that it will take CEO Stephen Saad time and considerable effort to regain the favour of the market. The core business, however, remains sound, and amid all the hysteria there may well be a buying opportunity.