Bigger global business than before

Aspen released half year results to end December yesterday afternoon. First question, why healthcare, why generics, why this company? Well, the whole idea that there are more middle class entrants globally with more access to therapies that they can afford, and that have become more affordable over time. There is no doubt that healthcare is just as much a demographics story as an other adoption of technologies that people want and need. I for one have no problem with expensive therapies, because the more adoption of these therapies, the cheaper that they become and that means that humankind gets to live healthier and fuller lives. That is why healthcare, that is why this company answered.


You would remember that comparison a few weeks ago of the developed world 150 years ago and now, and how childbirth and infant mortality rates plunging are a direct result of advanced healthcare. Sadly, as Warren Buffett puts it bluntly, it matters whether or not you win the ovarian lottery or not. It is far better to be born in Stockholm today than it is in say, ummmm Timbuktu? With all due respect of course to Mali, it is not Sweden, and not everyone has an even chance in life.


And that is where I think that generic pharma companies fall into the equation, the fact that they are profitable is great, because that means that they will continue to roll out cheaper therapies to customers that previously could not afford it. You might well know that the major pharma companies spend over 100 billion Dollars a year in research and development, their medicines justify the price. Unfortunately, because it is so incredibly emotional, healthcare that is, it feels awful when you have to fork out huge savings for the saving of a life. But then again, what is a life worth?


OK, we are close to existential argument domain, and that in itself is tricky and comes with a giant fat avoid!! So let us stick to the company that has certainly created an extraordinary amount of wealth for its shareholders, which includes some of the smartest management that there is. Talking of which, I was told that Stephen Saad, founder and CEO, has travelled on Kulula internally in South Africa, and as you know, there is only one class there. That tells me that the man in his official capacity as CEO is focused on the costs of the company, he should after all, he is a big shareholder, he owns bucket loads of shares. Which he acquired at 55 odd cents. What!!! He owns 12.1 percent of the company, 55 132 421 shares in total. At 281.5 ZAR a share he is worth 15.519 billion Rand. More than 1 billion Dollars. Another reason to own the company, the chief has your best interests at heart.

Bronwyn Nielsen had a great interview with Stephen Saad last evening -> ASPEN H1 REVENUE UP 33%. You can see a couple of things from this interview, manufacturing of course all in South Africa (the bulk) is a bit of a problem, but it has worked recently for the company as the Rand weakened significantly last year. This year, since the bottom of around 11.30 to the USD to somewhere around 10.60 currently. 71 percent of operating profits however are as a result of their offshore businesses. 32 percent Asia Pacific, that region is growing quickly, with early stage businesses in the Philippines, Taiwan and Malaysia. One of the most exciting however are the Latin American businesses, as well as the recent Russian business. Yes, Russia is an exciting and big opportunity.


That is what Aspen has become, a massive business operating on all the continents, of course most companies do not have a business in Antarctica. What is interesting about the local business is that when the currency had weakened, Aspen maintained their ARV contract with government even though they were losing money, it is/was part of their social contract with the country. Feels not so great as a shareholder, but as Saad said in the interview, they will get it back in time, when/if the currency goes the other way, so it feels good as a shareholder in that a public company is committed to greater society. And that part ties into what we said about companies able to reach a size and scale (thanks to the free market system) in that they are in a position to operate a low margin business.

An amazing business with loads more irons in the fire, including the exciting biopharma space (extracting mucous from pigs stomachs to produce therapies, as well as urine from pregnant women to help with fertility drugs), to the less exciting but has just as good prospects, infant formula business in Latin America. There is loads on the go, which means that the company is difficult to value at any one given time. The market research analysts in aggregate has the full year EPS number to June at over 11 ZAR, which means that Aspen trades on 25 times forward at current levels. Not cheap. Sometimes however, for quality businesses, you have to pay up.


Aspen has been perpetually expensive, even when the company was one tenth of the current share price. The yield is negligible and will remain that way as long as debt levels remain high as a result of acquisitions (gearing over 50 percent currently), but that may change as the company matures.


So what to do as a shareholder? The company has a great management team an entrepreneurial nature, decisions are made by those empowered to make them. That is a huge positive to find a company of this size and scale (but still small by global standards) with these growth prospects. We continue to add, the company ticks all of the boxes of a core part of ones local portfolio.