Half year numbers from Aspen

Aspen results yesterday. First things first, more shares in issue, remember Glaxo taking a big slug? Check it out: "The rise in headline earnings per share was diluted by an increase in the weighted average number of shares in issue as a consequence of the issue of shares on 1 December 2009 in settlement of the transaction with GlaxoSmithKline ("GSK") concluded on that date." Roger, got that thanks. I mean Stephen, got that Stephen and Gus.

We were looking to see how the businesses in Latin America were progressing, feedback from the Australian Sigma acquisition. I guess we can say, better but not quite where they (and ourselves) want it to be. First Latin America remains in their words a "core focus area", and has "great potential". Is that code for, have not quite got it right yet?

This is encouraging: "The Asia Pacific region of the International business is set for strong growth as the Sigma pharmaceutical business is integrated into Aspen Australia." That was always the idea, unlike many South African businesses that fail go down under, Aspen did not have the blinkers on. Perhaps that is not fair, but hey, many a Saffer business has failed to understand the Aussies. Don't expect anything grand just yet: "The earnings per share impact for this financial year is likely to be close to neutral due to the expensing of transaction fees, stamp duties and restructuring costs expected to exceed R100 million."

And the of course, where it all began back home, here it is in South Africa. A strong Rand is not bad for everybody: "Profit margins benefited from production efficiencies, procurement savings and the strength of the Rand." Thumbs up to the local pharma business which increased their market share to 16.7 percent, the consumer division was really iffy. There has been quite a big shift over time, the revenue mix has shifted quite sharply, but that was part of the growth strategy.

The score sheet. These are half year numbers sports lovers. Revenue up 33 percent to 5.99 billion Rand. Wow. That is a big number for any business. Headline earnings per share up 15 percent to 265.3 ZA cents per share. Operating profits were higher by 28 percent to 1.614 billion ZAR. Great margins, as you can see. 3.3 billion ZAR worth of sales in South Africa. We are moving closely to the tipping point where International sales will be more than half of all sales. Which will to some effect reduce the impact of the local unit on imports, which is a good thing.

Investment case for Aspen. The products are not the greatest when you line then up next to each other. But they sure are profitable, margins are really good. And the management team is nothing short of fantastic, they are really well regarded. Entrepreneur type, with big shareholders in the form of the top two, CEO Stephen Saad and CFO Gus Attridge as the only two executive directors have done nothing short of amazing for shareholders. And themselves. I cannot underscore this more, we are huge fans of their style. Plus we also believe that the generic space will continue to gain traction as cheaper, more affordable products are preferred by governments globally, in many of these emerging markets that they operate in. It is still early days in East Africa.

Investment case against Aspen. For the same reasons that you like them, you can dislike them, governments as big buyers are going to squeeze them over time, crimp margins, that is already starting to happen in the ARV space, check this bit out: "Performance in the second half of the year will however be affected by the reduced value of the recent ARV tender award. The Minister of Health has announced that no consideration will be given to an increase in the Single Exit Price before the end of 2011." Again, the same positives with Aspen could be seen as negatives, the emerging market growth PROSPECTS could be a negative too, they could fall flat.

Conclusion, the one man jury. We like it a lot, and would suggest that this recent pull back in the share price (from the mid nineties to current levels around 80 ZAR) is a buying opportunity. We like the theme, we like the team, we think earnings will continue to surprise in years to come, we think the Glaxo tie up is great. Buy.