Last week Aspen released half year results for the 6 months ending December 2020. After a few rough years, the numbers looked much better. Revenues increased 17% to R18.6 billion. This resulted in a 16% rise in normalised headlines earnings per share to R6.76.
Annualise that and the stock trades at 11 times earnings. That is a far stretch from the 30 times earnings this company used to attract in the "go-go days" of 2015 when they were acquiring businesses all over the globe. After getting ahead of themselves, management quickly realised that their debt levels had spiralled out of control. Fortunately they acted fast.
Net borrowing declined from R35.2 billion to R27.7 billion for the period. Unfortunately they had to sell some good assets along the way but that was necessary to avoid a rights issue. The leverage ratio now sits at 2.8 versus their covenant benchmark of 3.5.
Aspen has shown great resilience to turn the business around. That is what happens when the founder-management team are still big shareholders. The manufacturing of the Covid vaccine will bring goodwill but it remains to be seen if they will make much money out of it. That lesson would have been learnt from their big ARV contracts in the past. We still see Aspen as a good business to buy and hold on the local market.
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