Building your brand and establishing your reputation in the investment world is not easy, writes Amelia Morgenrood. Picture: Armand Hough/ANA/African News Agency
JOHANNESBURG - Building your brand and establishing your reputation in the investment world is not easy. Ask anyone in our industry. I remember many years ago, Prudential Asset Management published a research report saying Steinhoff might be something like a Ponzi scheme, but they were heavily criticised and laughed off.

But along comes Viceroy, a three-man-strong analyst team: the head being an ex-social worker, plus two youngsters. Their claim to fame: spotting accounting irregularities and overvalued companies and then taking short positions. They had some success, and then came Steinhoff. They were lucky to publish their damning report at the same time Markus Jooste resigned, leading to an almost instant 60percent-odd fall in the share price.

Early last month it became known that Viceroy were busy preparing a report on another South African company. Fear raged through the JSE.

Everybody was looking for a company similar to Steinhoff, having made a string of foreign acquisitions and taking on massive debt. Nobody wanted to be caught with another corporate disaster. Continuous acquisitions make it very difficult to analyse a company’s results, as they differ materially year after year.

No contact

The market decided it must be Aspen or Resilient. Aspen immediately said they knew nothing about this and hadn't had any contact with Viceroy. Aspen further advised they were not aware of any information of a price-sensitive nature that required communication to shareholders.

Then followed weeks of explaining and extinguishing fires. I watched an interview on CNBC with the chief executive of Aspen, Stephen Saad, one evening and couldn’t help feeling sorry for him and his company. His frustration and anger towards Viceroy were palpable.

And then, on Tuesday morning, Viceroy shared the name of its newest victim on Twitter. It took everyone by surprise. Capitec has been a long-standing darling of the JSE.

In another boardroom there was probably a sigh of relieve, Aspen was off the hook. But it forced analysts to have an in-depth look at Aspen’s financials, and there is still a sense of caution.

Two years ago, Aspen reached an all-time high close to R440; since then the share has lost 40percent. There was some recovery to R320 towards the end of 2017, but then it plummeted to below R250 last month. The historical price/earnings (* /e) ratio is now 20 - not very cheap, but better value. In the last few years, the * /e was closer to 30 times.


Aspen is a world-class company with excellent management; a global player in speciality, branded and generic pharmaceuticals that provide treatment for a broad spectrum of acute and chronic conditions. Aspen operates with an established business presence in 50 countries spanning six continents and employs more than 10000 people. It runs 25 manufacturing facilities across 18 sites and supplies medicines and products to more than 150 countries.

Aspen typically has a high debt-to-equity ratio as it is constantly making acquisitions. In Aspen’s case, the cash generated from these purchases usually pays off the new debt. The risk is that if an acquisition goes wrong and doesn’t create cash flow, it can put a strain on the company’s ability to cover the repayments.

Aspen is continually exploring options to enhance the value of its businesses. Recently it announced approval by Chinese authorities for the registration of its infant milk formula Alula.

Nutritionals is a global infant milk formula business, with a particular focus on emerging markets.

Aspen generated R3.2billion in revenue in 2017. It will benefit from the growing population and strong growth trends experienced in these regions, driven by high birth rates and increasing demand for safe, affordable formula.

Aspen will soon report for the six months to December 2017. The rand might be a damper, as the company earns a big chunk of its profits offshore. The share looks reasonably priced and an excellent addition to a long-term share portfolio.

Amelia Morgenrood is PSG Wealth regional director.

The views expressed in this article are not necessarily those of the Independent Group.