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Aspen’s dilemma

Managing its way through the growth cycle was never going to be easy. Now investors need reassurance.

Aspen has been under the spotlight recently as skittish investors dumped the share on speculation that the company was the subject of a report written by the team at Viceroy, which shot to prominence following its publication of damning research into the goings on at Steinhoff.

There are similarities between Aspen and Steinhoff: they are both hugely acquisitive multinational companies with very high gearing and they have both been the subject of investigation by foreign authorities.

Last year Aspen was fined by the Italian Competition Authority for aggressive price hikes in a range of cancer drugs it sells there. But it is a stretch to suggest that this implies it is a business riddled with financial irregularities.

Like Steinhoff, Aspen is very acquisitive and owns businesses in multiple jurisdictions. This is not unusual in the pharmaceutical industry, which has been going through a period of consolidation as regulators up the ante in what is already a tightly-controlled and highly-regulated industry.

Unlike Steinhoff, Aspen generally does not use its shares to fund acquisitions – which means shareholders are not constantly diluted. Since its listing in 1998 Aspen has issued paper just once: it issued 68.5 million shares to GlaxoSmithKlein in 2008 as part of the acquisition price, says Investec Securities analyst Marcelle Jankelow. In addition the group has not done a rights issue since listing, with all acquisitions funded through debt.

At the end of the 2017 financial year net debt stood at R37.1 billion and is expected to rise to R41.1 billion in 2018, before tapering back slightly, according to Investec Securities estimates. “We expect a net debt-to-Ebitda ratio of 3x for 2018 and 2.3x for 2019,” says Jankelow. Unlike Steinhoff, the group does not have any off-balance sheet financing and is highly cash generative.

In 2017 Aspen generated an operating profit of R8.3 billion, of which R4.3 billion dropped down to free cash flow. Also unlike Steinhoff, Aspen is easily able to convert its profits into tangible cash, with a cash conversion rate of 109%, according to Investec.

In an interview with Bloomberg News, Aspen CEO Stephen Saad said that Aspen and Steinhoff are “as similar as A is to S in the alphabet”.

However, while one cannot tar the Aspen management team with the same brush simply because the companies are acquisitive and debt heavy, there are investors who have been skittish about Aspen for some time. They cite concerns about debt levels and the fact that successive acquisitions bulked the company up, but did not deliver the returns – by any metric – that one had come to expect.

In tandem, growth in the share price, once exponential, has slowed over the last three years as Aspen matured and successive acquisitions failed to move the needle in a material way.

Aspen roller coaster

Like Steinhoff, Aspen does not de-segregate its acquired operations from their existing operations, so as a result, the market can’t accurately assess whether the acquisition is adding a return that is greater than the cost of capital. This simply fuelled suggestions that it was making poor acquisitions for the sake of revenue growth.

That said, investors should remember that Aspen made a conscious decision to go global in 2013. It was never going to be easy managing a complex, fast-growing company within a competitive and highly-regulated market. The cost of this rapid growth was efficiency and this was reflected by declining margins, among others. However, Saad and his team have spent the last year focusing on bottlenecks and remedying efficiency problems.

They have had some success in this regard. In the financial results for the year to 2017, the South African business returned to profitability among other small victories. “We are confident that this big push will start paying dividends soon, in fact it already has. Last year’s end of year numbers were very good and cash flows doubled,” says Byron Lotter, portfolio manager at Vestact. “But don’t forget that it is a rand hedge, thus the stronger rand has been negative for its rand earnings.”

Aspen delivers first-half results on March 8. The believers will be looking for evidence that the company has successfully navigated the change in its life cycle; while the detractors will be looking for ammunition to support their argument that no company is ever too big to fail.



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Viceroy needs to be investigated, these clowns can cause a lot of trouble if they are wrong. I doubt it is legal, if it was any stock broker could send out stories about companies and short them all.

who had indicated that Viceroy are stockbrokers or trader?, for all we know they could be individuals who go through financial statements of companies and look for discrepancy about the numbers.

I have not come across a report where Viceroy published about conducting an investigation into Aspen.

They not stockbrokers as you say they just a bunch of faceless guys scrutinizing balance sheets.

Is it only ok if a stock broker / analyst sends out a positive report on a stock in anticipation of the price going up(and then going long in the particular stock)?

Or short, with bad/fake news.

So if a stocker / analyst makes a bad “long” call for a stock it is fake news in your mind!? There is a lot of analysts who were pumping the alleged positives about Steinhoff – were they peddling fake news?

Your problem is that you are struggling to cope with the inverse situation. Short traders play an important function in the price discovery process – you need to understand their contribution.

You will look silly if there is a problem at Aspen


Reminds me of a party (and past leader) that rules in the Western Cape. They cry foul where media reports on their dirty laundry.

Agree with you Muks – pwgg should stay out of the kitchen and return to the protection of the nursery school

I hope the Aspen team realise it has become pertinent to bed down the current acquisitions, to return to optimal efficiency, to work down the massive debts and to then focus on new or alternative innovations. It’s has become time to reimburse the shareholders with massive dividends for their patience during this painful growth phase. Never mind the shorts and the rumors – in it for the long run.

How many shares do you have in Aspen @France?

Observer – more than enough to feel the pinch of the downward trend the past two years, never mind the volatility on the back of Viceroy speculation. Just over one thousand shares.
Why? What’s your point?

Who are these VICEROY RESEARCHERS guys? I’ve personally been suspicious for ages that stock markets over-react in the short term and self correct in the long term. What is currently happening supports my view (confirmation bias!). Who are Viceroy? No names of executives on their website? Very secretive! Seems to be a bunch of young Canadians intent on making billions through short selling? Their report on Steinhoff would have failed at MBA level – some good research but poorly argued and incoherent at times?

Most of the articles are intimating and that’s correct in that “Viceroy is threatening …” then surely this is market rigging. Whilst companies like Viceroy are important as a counter balance to ensure an efficient, ‘truthful’ and balanced investment climate, threatening to issue a report on any one of a number of ‘apparent’ companies is a problem. If you are going to issue a report then you should simply do so. This is particularly so in an already nervous market due to political, economic and other conditions and where panicked investors (and share traders) indiscriminately sell all names. If one views this logically, the threat of a Viceroy report – or any entity report for that matter, coupled with a dab of fake news on any ‘targeted’ company on any share chat room platforms can cause huge damage to many and result in huge profits for some. This surely is cause for concern and something that the FSB (or other relevant jurisdiction authorities) should have a close look at. If this is allowed to continue, investment as we know it will be as dead as the Dodo and make doing sound business and investment decisions and capital allocation very difficult.

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