Aspen trading update is great

OK, Aspen had a big and well received trading update on Friday and Paul said something that made sense. He said, now that was better worded than the Discovery one. And the reason being that the company points out that for the purposes of reporting whilst the company is in acquisitive growth is a measure of diluted normalised earnings per share. But the company points out the following, to help you understand: "DNHEPS from continuing operations comprises diluted headline earnings per share adjusted for specific non-trading items. DNHEPS is the primary measure used by management to assess Aspen's underlying financial performance."


It makes sense, but I can hear the purists howling and I side with them for the purposes of trying to value the business. With so many different account moving parts, why should you neglect the costs associated with the conversion of preference shares to ordinary shares. That is of course a dilution and by extension carries a cost to existing shareholders, regardless of whether that is a once off or not. But for the purposes of the trading update and the reflection to the rest of the market, a 26 to 33 percent increase in their DNHEPS (diluted normalised headline earnings per share) from continuing operations is pleasing. And the market reacted positively, reflecting this, the stock rallied 4.4 percent to close a cent shy of 236 ZAR a share.


The results will be released on the 11th of September this year. Last year, the same comparable number was 636.2 cents. In the middle of the range, an increase of 29.5 percent, that will translate for the full year earnings through to 823.9 cents. And the stock at 236 ZAR? Expensive? For sure, but in life you almost always pay for quality, and a company of this nature that is growing so quickly perhaps a 28 multiple might seems excessively steep, but the other measure, price to earnings over growth rates (PEG ratio), that is closer to 1 times. Which means that it is about in the middle of the range. Because relative to their South African peer (that is all now, and perhaps no longer) the stock is expensive.


But ...... Both Glaxo and Sanofi command 20 plus earnings multiples, Dr. Reddy's too. Even some of the older and well established types are close to a 20 multiple, Pfizer and Novartis command a 19 plus multiple. For a very fast growing emerging market generic company, perhaps it is not as wildly expensive as you might think.