Shares of Aspen Pharmacare rose the most in a month after SA’s biggest pharmaceutical manufacturer said it expected headline profit to rise by more than a third in its 2022 half-year.
Headline earnings per share (Heps) for the six months to December will be 34%-38% higher than the prior comparative period, the group said in a trading update, sending its shares up as much as 6% in intraday trade.
A fall in the share price since September has prompted some analysts to say the moves may have been a bit overdone, making it fair value at its current price.
“From the recent peak seen in September last year, we have seen a big correction in the share price,” said IG market analyst Shaun Murison. “The stock has looked severely oversold since the beginning of 2022 and this, coupled with the earnings update, are certainly enough to warrant a strong rebound.”
Aspen issued the trading statement according to JSE listing rules, which require a company to alert the market when earnings are expected to be at least 20% lower or higher in any given period.
The group said in a previous update that earnings had outpaced revenue growth thanks to lower finance costs.
In the past two years, Aspen has significantly reduced its debt from R46.7bn to R16.3bn after selling assets.
In a December update, Aspen said its commercial pharma division, which makes anaesthetic drugs and sterile drugs, reported revenue growth of between 4% and 5%.
Aspen’s manufacturing division, which makes active pharmaceutical ingredients that form the basis of medicines, saw revenue grow between 25% and 30%. The manufacturing growth was in part because of the role it played in packaging and filling Covid-19 vaccines for multinational Johnson & Johnson — with the vaccine bringing in about R800m.
TreasuryONE currency strategist Andre Cilliers said: “The earning’s growth is excellent and with the ongoing production of vaccines and possible associated exports likely, especially into the rest of Africa, that growth can continue and dividends could possibly be increased, which makes the share a good buy.”
FNB head of investment research Chantal Marx said the increase in Heps was tracking ahead of consensus growth.
“Generally, investors are excited about Aspen’s vaccine opportunity — particularly if Covid-19 vaccines become an annual event like the yearly flu shot. The company is also paying down debt pretty quickly and will be cash flush pretty soon with possible returns to shareholders to come,” said Marx.
She added that if the company continued to focus on growth in manufacturing as opposed to “consumer and pharma” then its price to earnings ratio will be lower than has been the case historically.
By the JSE’s close, Aspen’s shares were 4.73% higher at R216.70. The share price has risen almost 87% over the past two years, giving the group a market value of about R99bn. It expects to release its first-half earnings on March 9.
With Katharine Child
Update: February 1 2022
This story has been updated with closing share data, new information and comment throughout.
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