Aspen shares plunge on poor results

Aspen Pharmacare Holdings [JSE:APN] shares plunged to a seven-year low on Friday as an already protracted deal to sell its infant-formula business dragged out even further, choking off cash flows and weighing on financing costs.

The group's shares were down 51% at R69.17 a share on Friday at 11:22. 

By noon the pharmaceutical company's shares were changing hands at R90.37, down 35.98%.

By 12:42 its shares were trading at R98.74, down 30%. 

Africa’s biggest drugmaker announced the €740m euro deal with French cheese maker Lactalis International in September, but completion of the sale has become mired in regulatory scrutiny. Investors had already been disappointed with the price, and Aspen shares have more than halved since the sale was disclosed.

Earnings before interest, taxes, depreciation and amortization fell 3% to R5.5bn in the six months through December, the Durban-based company said in a statement after the market close in Johannesburg on Thursday. Earnings per share, excluding some items, slumped 9%.

“Gearing is much higher than expected as the deal is not completed and there’s weak cash flow conversion,” said Andre Bekker, a Johannesburg-based analyst at Arqaam Capital, which has its price estimate and rating on Aspen under review following the earnings.

The disposal of the infant-formula business, known as nutritionals, is to enable Aspen to focus on its main pharmaceutical operations. The company sells products such as hormones, anesthetics and anti-retroviral medicines in more than 150 countries. The deal also reduces the drugmaker’s exposure to China, which has long been a target market.

In a shift in immediate focus away from Asia’s biggest economy, Aspen said Thursday its “most promising pipeline opportunities” in the next couple of years lie in selling women’s health products in the U.S. The company has reached a memorandum of understanding with a partner it didn’t name that will distribute Aspen products in that country, the firm said.

Financing costs swelled to R1.2bn in the half year from R833m. Debt rose to R53.5bn.

“There is a definite change in strategy that is likely to concern the market,” Bekker said. Aspen has gone from talking about buying assets to possible disposals and focusing on de-gearing.”

* This article has been updated to reflect changes to Aspen's share price. 

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