Aspen results, Asia Pacific is the strong growth area

Aspen Pharma released their full year numbers yesterday, not in time for us to catch them and put them in the message. We first added this to the recommended list as a core part of our clients portfolios, back in 2005 Adding Aspen Pharmacare to the A-list. I laughed when I saw that last line from Paul, who writes much better than us, but does so not as often: "Perhaps more importantly, we believe that Aspen is a company which could double its earnings repeatedly in the years ahead, producing outstanding returns for its shareholders." Well, I would guess that has been about right. Over the last five years, compounded annual revenue growth of 36.5 percent, whilst profits on the same basis have increased 36.6 percent. The market actually has afforded the company a higher valuation, as the size and scale has increased, in part due to their geographic diversity and in part due to their Glaxo tie up.


Aspen are a far more global business than when we first recommended the stock, and they supply medicines to more than 150 countries, as per the Aspen Pharmacare 2012 year end results presentation. Group revenue clocked in at 15.3 billion Rands, normalised headline earnings (from continuing operations) increased 22 percent to 2.9 billion Rands. Normalised diluted headline earnings per share clocked 636 cents per share with the capital distribution to shareholders up 50 percent to 157 cents. At 142 Rands a share that means the stock trades at a very demanding 22.3 times earnings and a pretty poor yield of just over a percent. More on the valuations a little later.


This is no longer a South African business. South African revenues only represent 38 percent of group sales, lower than the 40 percent last year. Asia Pacific is breathing down their neck, with 37 percent of group sales. Sub-Saharan Africa sales (we somehow always exclude ourselves from the region) represent 10 percent of total sales. South Africa is however the most profitable region, accounting for 40 percent of EBITA. Group margins are steady at 27 percent, the same rate that they have been for the last five reporting periods.

But this is all going to change, the group suggests that there is going to be a ramp up in their Asia Pacific business, which will become the biggest revenue contributors. Aspen in the Philippines has commenced trading. There are obviously (because of population sizes and economic growth rates) many opportunities in the region with their South East Asia expansion. Think Vietnam and Indonesia, Malaysia and Thailand. Nice beaches, healthy looking people, generally speaking. I saw someone in the region on my twitter stream suggest that he hadn't seen a single overweight person. Hah-hah! And you thought that the Latin America businesses were exciting, this is better. Much better.


The group continues to invest heavily in capex, and boasts that they have spent 3 billion Rands in capex over the last 6 years. Whilst net debt has risen to just above 7 billion Rands (debt taken on to finance key deals), operating cash flows have quadrupled over the last six years. Two deals done recently are both deals done with GSK. The OTC and Classic brands (two separate deals) amounted to 4.3 billion Rands, both deals are set to close soon from a regulatory point of view. There was also a smaller deal with Novartis with two key products worth 442 million Rands concluded on the first of August. Bloomberg projects revenue growth for the current financial year to be comfortably ahead of their peer group. This should translate into the highest profits amongst their peer group, which includes Sun Pharma, Dr. Reddy's and Ranbaxy. Those are all Indian generic giants.


Never sitting still are the management team, who we regard as amongst the best in the country. Which, dare I say it might well mean that they are amongst the finest on this continent of ours. Based on the slides from the presentation, Aspen has collected data from Bloomberg via JP Morgan to illustrate that they are in fact still a compelling investment. Based on 2013 earnings numbers, at current valuations Aspen trades 15 times forward. We continue to acquire the stock. It is still a very important part of our portfolios in one of our key themes that we invest in, healthcare.