Time to buy?
A week or so ago I ran a quick and dirty analysis on one of the
most promising pharmaceutical companies in South Africa namely, Ascendis Health
(Share code:
ASC) Per their latest annual report, Ascendis is a fast-growing health and
care brands company consisting of three divisions, Consumer Brands (OTC
medicines, vitamins, sports nutrition and skin care products); Phyto-Vet (plant
and animal health); and Pharma-Med (prescription drugs and medical devices).
The company has expanded internationally with acquisitions in Spain, Europe and
Cyprus representing some of the leading brands pharmaceutical across
these locations (see https://citizen.co.za/business/business-news/1131697/ascendis-health-turns-to-europe/).
Currently, the company is selling products in more than 140 countries, including 50 in Africa. The company has a very experienced and suitably qualified management team and currently ranks among the top 4 pharma companies in South Africa. Below is an extract of the segmental revenue split for 2017:
Currently, the company is selling products in more than 140 countries, including 50 in Africa. The company has a very experienced and suitably qualified management team and currently ranks among the top 4 pharma companies in South Africa. Below is an extract of the segmental revenue split for 2017:
As can be seen above, the company has experienced substantial growth
in their revenues due to the various acquisitions made. Based on my analysis, I
also picked up the following:
1. The Company consistently achieved high
margins in excess of 40% since it listed in 2013;
2. The per share growth rate in headline
earnings per share (HEPS) since 2013 is in excess of 50%;
3. The price-to-cashflow (PTC) ratio is
currently 11.71%;
4. Net asset value (NAV) per share is R12.28;
5. Net accounts receivable to revenue is a
modest 25%;
6. Dividend pay-out ratio is 24%; and
7. Return on equity (ROE) on average is around
6% since 2013.
It is important to note that
the company has tapped quite extensively into the debt markets as well as
various rights offers (that increase the number of shares outstanding and
therefore decreases the share price) to fund its acquisition spree and with a
debt to cashflow ratio of around 13, one would be forgiven to remain cautious.
It is however good to note that the current long-term debt to equity ratio is
below 1 and the current ratio is around 1.4.
As the company embeds its
new acquisitions one would expect the return to equity to improve as well as
the headline earnings, given the brands acquired are very cash generative and
the industry is rather defensive to economic cycles. In addition, one would
expect the strong cashflows generated to be used to reduce the high gearing levels
and place the company in a good position to fund further suitable acquisitions.
At a share price of around R11
and modest P/E ratio of around 13 currently, ASC is not only trading at a
discount to its current NAV per share, but also appears to offer value, given
the low P/E ratio and the acquisitive nature of the company. If ASC continue to
increase HEPS at an average rate of 50% one would also expect the share price
to increase in line. One thing is certain, ASC appears to be a company with
good long-term prospects and offers the opportunity to invest in a well-diversified
company that operates in a defensive industry that generates healthy cashflows.
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