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On Friday evening Aspen released a trading update which included a fair amount of important information. Revenues are expected to grow between 2-4% and normalised headline earnings per share are expected to come in between R7.46 and R7.77 for the 6 months ending December 2019. Trading at R107 a share and making R7.50 in 6 months, this company is cheap.
More importantly, the company mentioned that the operating cash flow to headline earnings conversion ratio sits at 80% compared to 43% the year before. Net borrowings declined to R38bn and the leverage ratio sits at 3.2-3.3x versus the covenant threshold of 4x. This improved after the sale of the Japanese business for 270 million Euros which they received payment for this month (February 2020).
Aspen is still concluding a transaction to sell the rights to the South African state ARV business. That has been reclassified as a discontinued operation. Sad but true. The company is not a charity, especially when the rest of the business is struggling.
The forced sale of the formula business and the Japanese business seems to have saved Aspen from a rights issue. I expect the share price to react positively to this news. At these levels, it seems to be a good potential turn around story.
