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Aspen rockets after good news on debt

Sep 03 2019 10:22

Aspen [JSE: APN] jumped by 7% in its first hour of trading on the JSE after releasing a trading update. 

The company is battling a massive debt burden, and the update showed that it is making progress in reducing it.

Net borrowings declined to less than R40 billion at 30 June 2019, from R53.5 billion six months earlier. This is due in part to a deal that allowed it to sell its infant milk business. But its net debt position remains slightly bigger than its market capitalisation of R39 billion.

In South Africa, one in every five scripts dispensed by local pharmacists is for an Aspen product. In Australia, it is one of the five biggest pharmaceutical groups, and worldwide, it is a major provider of anaesthetics and thrombosis treatments.

But to fund this huge global expansion it took on massive debts, and most of the debt is in “hard” currencies like the euro - while the bulk of its sales are in emerging markets, which typically have weak and unstable currencies.

This has hit its share price hard: it lost three-quarters of its value over the past five years. From more than R400 in 2014, it traded at R83.15 on Tuesday morning.

On Tuesday, the group reported strong cash flows in the past six months. The operating cash flow to headline earnings conversion ratio is expected to be  more than 100% for the year ended 30 June 2019, up from 47% in    the six months to 31 December 2018.

For the year to end-June, its revenue grew by between 0% to 2%. The company said revenue was impacted by underperformance in the Europe region, constrained anaesthetics supply and a strike in South Africa, offset by positive sales results in the Asia Pacific and    Latin American regions.

Still, its normalised headline earnings will be between 7% and 11% lower.

Compiled by Helena Wasserman

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