Aspen hurt by ill winds lashing sector

Author: Michelle Gumede

Source: Business Day

AFRICA’S largest generic drug maker, Aspen Pharmacare, is trading at levels last seen in 2013 as negative sentiment towards healthcare companies persists. Regulatory bodies, meanwhile, are keeping a close watch on the sector. On Monday, the share was trading at R274.25, compared with R236.92 on August 22 2013.

It peaked at R440 in 2015. Portfolio manager at Gryphon Asset Management, Casparus Treurnicht, said superb results will not be enough to push Aspen to previous highs. He said management credibility has definitely taken a knock and, at best, there should be a gradual share price increase to previous highs over the next two years.

In June, Aspen lost its appeal against the €5.2-million fine levied by the Italian Competition Authority over the price of some of its cancer drugs. Domestic competition authorities also announced an investigation into the pharmaceutical industry. While the company has defended itself against allegations of overcharging for cancer drugs, the share price has declined 3.3 percent in the past 90 days of trade. Treurnicht said that sentiment on the sector was depressed because investors had chased the stock to levels that implied a “perfect earnings profile” and that regulatory bodies were “handing out fines left and right”.

Aspen’s dividend policy is to pay out 0.91 percent of the share price. Treurnicht said that while Aspen was still a business that operated in a good space for the long-term, the poor performance coupled with a low dividend yield was not impressive. He said there has been a poor performance and it doesn’t quite qualify as a hefty dividend payer with a yield of less than one percent, adding that the company is now in a period where earnings first need to grow into the share price.