Trade Aspen Pharmacare with Unum Capital.
To get started, email lester@unum.co.za
Today's high = 18431c
Analyst's Disclosure: These results were summarized using an A.I tool.
Overall Performance: Aspen achieved robust operational growth, highlighted by a 21% increase in normalized EBITDA and a 17% rise in normalized headline earnings per share, both measured at constant exchange rates (CER). This strong underlying performance was driven by significant contributions from both the Commercial Pharmaceuticals and Manufacturing segments.
Currency Impact: However, the strengthening of the South African Rand (ZAR) against other trading currencies significantly diluted the reported financial results compared to the CER figures. This currency fluctuation created a notable disparity between underlying operational strength and reported outcomes.
Commercial Pharmaceuticals Growth: The Commercial Pharmaceuticals segment demonstrated solid growth, with a 13% increase in both revenue and normalized EBITDA at CER. This highlights the segment's strong market performance and effective strategic execution.
Manufacturing Surge: The Manufacturing segment experienced exceptional growth, with normalized EBITDA more than doubling. This surge was primarily attributed to the increased contribution from sterile contract manufacturing, indicating a successful expansion in this specialized area.
New Product Launch: A significant achievement was the successful launch of Lilly's Tirzepatide-based product, Mounjaro, in South Africa. This launch is expected to be a key growth driver for the Africa Middle East region, enhancing Aspen's market presence and product offerings.
Latin American Integration: The successful integration of acquired products in Latin America played a crucial role in boosting revenue growth. This demonstrates Aspen's ability to effectively expand its operations through strategic acquisitions and integrations.
GLP-1 Initiatives: Aspen made substantial progress in its GLP-1 initiatives, which represent a significant growth opportunity for both the Commercial Pharmaceuticals and Manufacturing segments. This strategic focus positions Aspen to capitalize on the growing market for diabetes and obesity treatments.
Tax Rate Increase: Earnings growth was moderated by an increased effective tax rate, primarily due to South Africa's implementation of the OECD's BEPS Pillar 2, which sets a global minimum tax rate of 15%. This regulatory change has impacted Aspen's financial reporting.
Salient Highlights: Key financial highlights include a 4% increase in revenue (9% at CER) to R22.0 billion, a 12% increase in normalized EBITDA (21% at CER) to R5.8 billion, and a 5% increase in normalized headline earnings per share (17% at CER) to 724.2 cents.
Group Performance Details: The Group's overall positive performance was driven by strong results across all business segments. Revenue grew by 4% (9% CER), with gross profit rising by 12% (20% CER). Normalized EBITDA increased by 12% (21% CER), and operating profit rose by 11% (23% CER).
Financial Costs and Tax: Normalized net financing costs increased by 20% due to higher interest rates and increased net debt. Higher tax expenses, influenced by regional profit mix and BEPS Pillar 2, diluted normalized headline earnings per share growth to 5% (17% CER).
Working Capital and Debt: Higher working capital investment in Manufacturing inventory, primarily seasonal, impacted operating cash flows, reducing the operating cash conversion rate. Net debt increased to R30.0 billion, but the leverage ratio remained within the target range.
Commercial Pharmaceuticals Segment: This segment showed robust revenue growth of 7% (13% CER), supported by the Latin American acquisitions and organic growth. Gross profit margins remained strong.
Prescription Brands: The Prescription Brands segment experienced double-digit growth of 19% (25% CER), with the Americas region leading the growth, followed by Africa Middle East.
OTC Segment: The OTC segment saw a revenue decline of 3% (+2% CER), impacted by order delays in Africa Middle East. However, other regions showed solid growth, and the Australasia OTC portfolio performed strongly.
Injectables Portfolio: The Injectables portfolio returned to growth, rising 4% (10% CER), driven by the Lilly products in Africa Middle East and the product swap with Sandoz in Asia.
Manufacturing Segment Performance: Manufacturing revenue decreased by 4% (0% CER), with growth in FDF revenue offset by declines in Heparin and API businesses. However, FDF revenue surged due to sterile manufacturing contracts, and gross profit margins improved significantly.
Future Prospects: Aspen anticipates double-digit CER revenue and normalized EBITDA growth from Commercial Pharmaceuticals, supported by organic growth and acquisitions. Manufacturing is expected to continue robust growth, driven by sterile manufacturing and a rebound in the API business.
Strategic Initiatives: Aspen is making significant progress in commercializing the Novo insulin manufacturing contract and advancing its GLP-1 initiatives. Regulatory changes in South Africa are expected to benefit the Serum paediatric vaccines.
Financial Outlook: Aspen expects manufacturing inventory levels to decrease in the second half, improving cash flow. Finance costs are anticipated to decrease due to lower interest rates. Effective tax rates are expected to remain higher due to increased manufacturing profits and BEPS Pillar 2.
As always, traders could consider the following if/when the prices approaches the target: bank/take profit, partially scale out, adjust the stop-loss to protect profits.
As published in on 28 November, the 5 to 8 week reading (at R166) stated: "Look for a dip before a minor rebound" (see below). Now trading above R180.
Previous Post: Trade Idea - Buy Aspen Pharmacare
Text from the image above:
HIGH RISK BUY IDEA therefore small-than-average position sizes may apply. The share has been sold off aggressively and was previously in a high bearish momentum regime while approaching oversold. A base has developed and this may be a RANGE to starting building a buy/long position with the expectation that the base is maintained over the near term followed by a potential bullish reversal. Buy at current levels or lower (traders could consider starting with a 1/3 of the position). As always, traders could consider the following if/when the prices approaches the target: bank/take profit, partially scale out, adjust the stop-loss to protect profits. Time stop: 09 June 2025.
TRADING LEVELS:
Entry: 17124 (or better)
Target: 19000
Stop-loss: 15900
Previous Post: ASPEN PHARMACARE Noted: Above-Average Volume (4.5m Shares) + Value Traded (R779m)
Tuesday 10 December 2024 (Time: Pre-Market)
10-day average volume: 1.4m shares
30-day average volume: 1.2m shares
Yesterday's volume: 4.5m shares
Value trade: R779m
Previous Post: ASPEN PHARMACARE The Bull, Bear & Base Case
Thursday 28 November 2024 (Time: Pre-Market, 06h32)
This is an update. Please scroll down for the previous posts.
The price action remains unhealthy, with strong selling pressure, with my view being that is that it is too early to buy, however, it may be worthwhile adding it to your watchlist for when the price action stabilizes/improves.
Bear Case = A print lower, with a very slow recovery which includes opportunity cost.
Base Case = A print lower, with a slower, but eventual recovery.
Bull Case = A print lower, followed an overshoot of the ~R160-ish support range, followed by a relatively quick price recovery.
The dotted arrow represents my best-probability price action scenario.
Bear Case = A print lower, with a very slow recovery which includes opportunity cost.
Base Case = A print lower, with a slower, but eventual recovery (possible little downside from here).
Bull Case = A print lower, followed an overshoot (false breakdown) of the ~R160-ish support range, followed by a relatively quick price recovery (possible little downside from here).
Adding to the above, as of yesterday's close, the price action data was as follows:
Previous Post: Aspen Pharmacare: Unhealthy Price Action, But Flashing For Opportunity
Wednesday 23 October 2024
Time Published: Pre-Market
Ticker: APN
I am fully aware of the heavy selling pressure and poor price action, however, I am starting to notice readings coming through which states that the reward-to-risk is becoming attractive for a small buy/long position.
While the readings are there, it may just be sensible to wait until the price stops going down and starts to form a base...or gives us a 'flush low' and a V-shaped reversal setup.
Notice the 5 to 8 week reading also stating that selling is aggressive and that we should wait for the price to stabilize?
I drew these lines a few weeks ago, thinking R160 or thereabout would be a level of interest.
Previous Post: Aspen Pharmacare: The Long and Short of It - Thursday, 05 September 2024
Pre-Market
Ticker: APN
Within the span of 19 months, the share has provided clients of Unum Capital with two opportunities to profit.
These opportunities came on both the long (buy) and short (sell) side, benefiting from a rising and falling share price.
The short leg provided short term traders with 3x opportunities to sell above 23500c.
Although the share briefly test the stop-loss level (a spike), the share pullback was in line with the view.
The updated chart, with the time-stamped ideas, is shown below.
Lester Davids
Analyst: Unum Capital
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