INVESTORS in JSE-listed pharmaceutical group
Adcock Ingram Holdings [JSE:AIP] must be wondering how much more bad luck their investment needs to endure.
Last week the share lost more than 10% after it was hit by a double whammy of bad news.
First, the company heard that it was expected to withdraw its Synap Forte, Lentogesic and Doxyfene product lines after the US Food and Drug Administration (FDA) withdrew the medical compound dextropropoxyphene (DPP), which is contained in the products.
The second bit of bad news came in the announcement of the state's antiretroviral (ARV) tenders, where Adcock Ingram was awarded 4% of the tender which translates into R166m.
This was in contrast to the previous tender awarded in 2008, when Adcock Ingram enjoyed about 20% of the total issued.
Competitor
Aspen Pharmacare Holdings [JSE:APN] secured 40% of the tender (down from 56%) while smaller rival
Cipla Medpro South Africa [JSE:CMP] was up sharply from 1.9% to just above 10%. Cipla has in the past also picked up shortfalls from other manufacturers, so this figure could rise to as much as 15%.
Adcock has been a popular stock with professional money managers, with many tipping it as a "buy" in 2010. But last week's sell-off has obliterated most of its gains for the year.
Asset managers have expressed some disbelief that Aspen can continue its meteoric run, and doubts remain whether Cipla was working in the best interests of shareholders when the company rebuffed a takeover bid from Adcock.
Bad luck or bad judgement? A look at the performances of the three listed pharmaceutical sector players tells an interesting story. Cipla Medpro came out tops with 45%, while Aspen delivered 29%. Adcock has returned just 9%, excluding dividends.
That leaves it trading on a historic price to earnings multiple of 16 times, in comparison to Cipla (15) and Aspen (on 20 times earnings).
In a year in which its rivals delivered the goods, Adcock has found itself floundering.
There have been issues with the Competition Commission, and it is still stinging from its failed Cipla bid. This raises questions as to whether this is sheer bad luck - or a company which lacks strategic direction.
Perhaps the best answer to this question comes from the approach adopted by institutional asset managers.
These investors voted with their wallets and were solid buyers of the stock in the first half of 2010, but used the third quarter of the year to take profits off the table.
The Investec Value Fund sold out of its entire holding during the last quarter.
Other notable sellers included the highly rated investment teams at RE:CM and the Nedgroup Rainmaker Fund. However, both funds still hold about 2% of their portfolios in the stock.
Similarly, the more patient investor can look at the 36One, one of the top performing funds over the last three years and highly regarded for its stock-picking skills.
The fund also reduced its holding slightly, but Adcock continues to make up more than 5% of its portfolio.
In short, Adcock has its limitations in the near term, but the recent sell-off might be putting it back in buyers' territory.
- Fin24