Analyst recommendation

                                                                                                           As at 18 November 2024

Executive Summary

1. Strong progress is being made in sterile capacity fulfilment. Additionally, the company bought a portfolio of
products from Viatris for R5.3bn which is expected to boost revenue. The future fulfilment of the remaining sterile
capacity, along with the contracts from GAVI, is still to be seen.
2. Key points in the investment thesis are:
a. Manufacturing remains the underperformer in the portfolio, due to the heparin unwind, although this should
improve in the next two years. While revenue will decline in this segment, margins will improve.
b. There are execution risks as the company relies on future contracts to drive growth. While management’s
outlook beyond 2025 is optimistic, it remains achievable. Contracts will have to be negotiated on top of the
Novo Nordisk, Eli Lilly, Viatris and Amgen ones that have been signed.
c. The Chinese volume-based procurement policy remains uncertain; however, management sees this mitigating
post 2025.
d. Debt has been effectively managed in recent years and should continue declining after the Viatris acquisition.
e. The company is trading below its five-year average multiple and looks attractive at the moment. The doubledigit organic growth expected in the commercial segment is now more achievable now following the Chinese
VBP issue, provided this doesn’t persist in the future.
3. Have an intrinsic value of R206 per share (upside of 18%) and recommend a buy position.
a. An estimated EBITDA of R15.1bn with a WACC of 12.3%.
b. Forecasted revenue growth slightly ahead of consensus due to improved EBITDA margins.
c. Upside on the current share price of R174. Pipeline deals and spare capacity should see improved margins.
GLP-1 projects provide ample opportunity post FY26, however this remains uncertain at the moment.

Analyst thesis

a. Price is currently well below its two year forward EV/EBITDA average of 8.3x, however, if they do not deliver on
their guidance this could be warranted.
b. Failure to achieve fulfilment of the sterile capacity and EBITDA margins not improving to closer to 29%.

Results

Results summary

On 4 September 2024, Aspen released its full year financial results for 30 June 2024.
1. Total sales increased by 10% to R44.7bn, but up only 5% when adjusted for currency.
2. EPS (cents) declined by 15% from 1163 (cents) in June 2023 to 989 (cents) in June 2024.
3. EBITDA margins decreased from 27.3% to 25.2% as the company unwinds an inventory backlog of Heparin.
4. The acquisition of a portfolio of drugs from Viatris, management of the Chinese volume-based procurement and filling of the vacant sterile contracts will lift growth going forward. Management is frustrated with a slow progress of the Gavi agreement which will focus on health care spending in Africa.

Valuation

Table 3: Valuation

Table 6: Valuation multiples

Source: FactSet