Karsten Wellner. Picture: FINANCIAL MAIL
Karsten Wellner. Picture: FINANCIAL MAIL

Investor paranoia about offshore acquisition strategies that resemble Steinhoff’s has contributed to the recent sell-off of Ascendis Health’s shares, analysts say.

The share price of the acquisitive healthcare group, headed by Karsten Wellner, is down 21% in 2018 at R13.90. It has nearly halved since its high of R26 in May 2017.

Ascendis’s R750m rights issue in December, the stronger rand, concern about the company’s high debt and market unease about debt-funded offshore acquisitions are probably to blame for the continued sell-off, said Sasfin Securities senior portfolio manager Nesan Nair.

"I think any business that embarked on an offshore expansion that was fuelled by debt kind of smells like Steinhoff," Nair said. There were many examples of this otherwise legitimate strategy in SA, he said.

"People are just hypersensitive to the Steinhoff [scandal]," said Nair.

Ascendis’s debt-funded takeovers include Cypriot company Remedica and European sports nutrition firm Scitec, both of which were bought in 2016.

Aspen Pharmacare CEO Stephen Saad sought to distance his company earlier in January from Steinhoff after Aspen’s share price plunged on rumours that Viceroy Research, which investigated Steinhoff, was preparing a report on the group.

Saad said Aspen had paid for its acquisitions using cash, unlike Steinhoff. Given the rapid selloff of Aspen’s shares, he called for an inquiry into market manipulation.

Meanwhile, some asset managers are taking advantage of Ascendis’s share decline, with WDB Investment Holdings and Sentio Capital Management increasing their stakes in the company to 5% as others sold down.

"The recent fall in the share price is largely related to issues not specifically to do with Ascendis — obviously related to Steinhoff, Viceroy and Aspen," Rayhaan Joosub, deputy CEO of Sentio, said. With the stock now trading at an undemanding price:earnings (p:e) ratio of 7.9 based on estimates for 2018 financial results, "the share is very cheap from a valuation perspective and it’s a great entry point into the company".

Aspen is trading at a forward p:e of 15.1.

Joosub said the market would remain volatile until investors realised "that not every company is a Steinhoff".

"Expect noise for the next three to six months," Joosub said, adding that he believed there was nothing unscrupulous about Aspen and Ascendis’s financial reporting.

Joosub said investors were also concerned about Ascendis’s organic growth numbers, free cash flow generation and debt levels. If the results in March showed that it had made progress on these fronts, the market was likely to grow more comfortable with Ascendis and the share should rerate.

They "like the investment case", as the company was more diversified than Aspen and had good products.

"With pharma, consumer health and the animal health businesses, there’s very strong diversification and a very strong offset in terms of economic cycles, and
obviously the global versus SA [diversification] as well,"
Joosub said.

With recent acquisitions being integrated into the business, the management could now focus on organic growth. One way to do that would be to sell South African products such as the Solal brand in Europe, and vice versa, he said.

"We think cross-selling is a very important part of getting that organic growth from
5%-6% to the 10% target that management has set."

Initiatives to lift free cash flow generation would furthermore help Ascendis to bring down its debt.

Vestact analyst Paul Theron said that Ascendis "has acquired some good-looking assets and made great progress over the years".

"In the current market environment, investors are worried about rapid growth by acquisition and high debt levels…. That probably explains the selloff," Theron said.

Meanwhile, Nair said rand-hedge stocks in general were under pressure.

"In the past month or so, since the ANC elections, it’s only the rand-based businesses, the ones that are fully focused on the South African economy, that seem to have been showing any sort of growth."

While the JSE has gained nearly 4% over the past month, rand-hedge majors British American Tobacco, Richemont and Anheuser-Busch InBev have lost ground, though not nearly as much as Ascendis.