What to do with Aspen?

What is going on at Aspen? They closed last night below R70 a share, a price they were at in 2010. The company released a sens yesterday indicating an anticompetitive fine in the UK of 8 million Pounds. Although that amount is not crippling it represents a sign of desperation within the corporate culture.

The bigger issue is the size of their debt which is largely based in hard currency. As the Rand weakens, their debt to market cap ratio gets worse and they start breaking various covenants (agreements with lenders). This, in turn, makes them forced sellers of assets. Fortunately, they got a good price for the milk formula business, but as they get more desperate, it becomes harder to sell business units for reasonable prices. This means a possible rights issue which results in the share price falling even more. It is a vicious cycle.

What makes matters worse is a lack in sales growth, which means access to working capital is desperately low.

Management were always adamant they had their debt levels under control. Even more frustrating was that up until 2018 they were predicting double-digit growth because their offshore acquisitions were starting to bear fruit. Debt is manageable if you are growing and we believed a team that had kept to its forecasts for decades.



What to do? We suggest you hold the shares until the results in mid September. We will attend the presentation and will come back with a better idea of where this business is headed. We will be in touch.