Aspen lifted as founders buy shares worth R110m

Aspen Pharmacare CEO Stephen Saad
Aspen Pharmacare CEO Stephen Saad

Aspen Pharmacare’s founders bought R110m of the company’s shares on Friday, taking advantage of a sharp sell-off since September 13.

CEO Stephen Saad bought R93.9m worth of his company’s shares on the open market, while his deputy, Gus Attridge, bought stock worth R15.6m.

The transactions helped Aspen’s shares gain 2.16% on Friday to close at R156.93.

“We bought the shares because we believe in Aspen and what we do,” Saad told Business Day.

Both are significant shareholders of Aspen, with Saad holding about 12% through trusts and in his individual capacity, worth R8.6bn at Friday’s close.

Attridge directly and indirectly owns about 3.4%, worth R2.4bn, according to Bloomberg data.

The company’s shares have lost 42% of their value since it published annual results in September and said it would sell its nutritionals business for significantly less than the market expected.

The group also paid a dividend on October 8.

Andre Bekker, an equity analyst at Arqaam Capital, said the sell-off ensued because investors had been disappointed by the group’s numbers, including operating margins, cash flows and gearing levels, which meant “the narrative around the Aspen story has changed a bit”.

Analysts and fund managers had revised their earnings forecasts lower because Aspen was facing a tough year in 2019, partly due to the loss of certain manufacturing contracts, a one-off gain in anaesthetics sales in Japan in 2018 and increased pressure on high-potency and cytotoxic generic sales in Europe.

Aspen said in September it expected organic revenue growth of 1% to 4% in its commercial pharmaceuticals business for the 2019 financial year.

The company also said the sale of its nutritionals business was expected to bring in net proceeds of about €644m (about R10.5bn).

It said that the funds would be used to reduce group debt.

Net borrowings totalled R46.78bn at the end of June, reflecting a 26% year-on-year increase.

Meanwhile, Bekker said Aspen was also facing regulatory headwinds in countries such as Japan and Australia, and this would weigh on medicine prices.

While the company previously traded at a premium to its specialised generic pharmaceutical peers, the market was now “toning down that relative premium”.

He disagreed the sell-off was the result of Aspen getting a lower-than-expected price tag for its nutritional unit, as some commentators claimed.

“What was more important about that deal was that it was likely done out of need,” Bekker said.

Aspen would have been in breach of its debt covenants in 2019 had it not raised capital via an asset sale, as it had to settle deferred liabilities, R11bn in current debts, and also maintain capital expenditure.

Vestact wrote in a research note shortly after the sell-off started that investors had been jittery since the Steinhoff accounting scandal was unearthed, and blue-chip companies, including Aspen, had been taking strain as a result.

Aspen’s shares had also been dented by general gloominess surrounding emerging markets.

“We still own Aspen for clients, but I don’t think the share price will pick up until the current negative cloud lifts,” the money manager said.

The stock is trading about 64% below its 2015 high of R439.69.