It is cold in Aspen

To market to market to buy a fat pig. For many investors they had flashbacks of Steinhoff yesterday as the Aspen share price dropped 10% and the the words 'Viceroy report' were mentioned. Viceroy Research were the guys who published a report showing how Steinhoff were cooking the books. This Tweet from Viceroy in late December confirms that they have a South African company in their sites.


I'm not sure how the market even 'knows' it is Aspen because Viceroy hasn't publicly stated any company name. Maybe the Viceroy people brought up Aspen one too many times when asking questions?

This SENS announcement from Aspen yesterday afternoon, helped the share price recover some of its losses. Thanks to all the attention around Aspen yesterday, I'm sure the Viceroy team received many requests for comments. They released the below comment last night. We will only know in the next three months which South African company is in their sites.



What do we know at the moment?

1) Aspen is being investigated in the UK by the UK Competition and Markets Authority ("CMA") for two drugs that have a combined revenue of GBP11.1 million. This investigation was opened in October 2017.

2) In early October 2017 the South African Competition Commission decided to drop its investigation of Aspen for suspected abuse of dominance and excessive pricing.

3) The Italian Competition Authority ("ICA") fined Aspen EUR 5.2 million and dismissed Aspen's appeal in June 2017. In their SENS announcement Aspen does note that "a generic version of one of the Aspen drugs in question has recently been approved in Italy with a list price of more than double that of the Aspen drug on an equivalent dose basis."

4) In May 2017 the the European Commission "opens formal investigation into Aspen Pharma's pricing practices for cancer medicines". This was in line with the Italian investigation but excluded drugs sold in Italy given that Italy was doing their own investigation.

There are also some similarities between Steinhoff and Aspen that people are now focussing on. The first of which is that both Aspen and Steinhoff's business model is to buy companies and then plug it into the efficiently run parent company, creating value for shareholders. For both companies they have operations on every continent. Many purchases and multiple operating jurisdictions create many moving parts, which creates gaps for managers to hide things. This is where the auditors come in, to ensure that the numbers reported reflect the business.

The second is that both companies have big debt burdens, which come with big interest bills. In Aspen's case they have around R73 billion in debt, which they pay around R2 billion a year on. That number is irrelevant without context though. Aspen have R116 billion in assets, which includes R60 billion in intangible assets (things like brand names, patents and licenses). More importantly, how does their cashflow stack up agains the interest payments? In the last financial year they had an operating profit of R8.3 billion and cash generated from operating activities of R6.5 billion. Depending on how you want to look at it, they can cover their interest payments three or four times overs. Their debt is high but not excessive.

All of this is not new information though. What has changed is people's perception of these facts due to fear and recency bias. Are there skeletons hiding in Aspen's closest? Publicly available information says there aren't.

What to do from here? Making long term investment decisions based on emotion almost always ends badly. Wait for concrete facts to make decisions, right now there aren't any. There might not even be any new information. It is not unusual for organisations to write negative reports about other companies. Especially companies where the organisation has a short position. This tweet from Byron yesterday sums things up well.



Market Scorecard. Yesterday our market fluctuated between red and green all day, finally squeaking a green finish. The Dow was up 0.41%, the S&P 500 was up 0.13%, the Nasdaq was up 0.09% and the All-share was up 0.13% The positive moves in the US means that they remain in record territory.

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Linkfest, lap it up

Byron's Beats

At the JP Morgan Health Conference Bob Bradway, the CEO of Amgen, had some interesting things to say. This Motley Fool article summarises his presentation into 5 highlights.

5 Things Amgens's CEO just Said That Investors Need to Know

Jeff Bezos is now the richest man in the world, you probably knew that already. But what are his philanthropic targets? He clearly wants to make the world a better place. This Business Insider article looks at his ideas and refers to a recent tweet Bezos put out asking for ideas.

Jeff Bezos is the world's richest person - and he could redefine philanthropy

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Home again, home again, jiggety-jog. Aspen opened up 1.5% this morning but have slipped to be down 1.5% now. With all the lack of information and emotion around at the moment, expect the share price to be volatile. The only note worthy data release today is US oil inventory numbers. With oil quickly approaching $70 a barrel, currently at $69.20 a barrel of Brent crude, that data becomes more significant.

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Sent to you by Team Vestact.