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Background and overview of Ascendis (ASC)
Ascendis Health is a health and care brands company operating in plant, animal and human health. ASC owns brands in various different market categories. A few of them include:
Skincare:
Sports Nutrition:
Wellness:
Pharma:
Veterinary:
Skincare:
- Nimue
- phFormula
- Solal
Sports Nutrition:
- EVOX
- SSN
- Supashape
- Bolus
Wellness:
- Vitaforce
- JungleVites
- Bettaway
Pharma:
- Pharmalider
Veterinary:
- Marltons
Scroll over or click on the funnel chart to get more details of ASC's latest financial results.
Financial review:
ASC is sitting on a net profit margin of just 4.85%. Net profit amounted to R190million on revenue of close to R4billion. Margins are expected to be tight in this sector as there are a whole host of competitors such as Cipla (used to listed), Aspen, Adcock. While there is loads of competition, barriers to entry is pretty high and the risk of additional competition entering the market they are in and making substantial headways are pretty slim. In contrast to say the clothing industry that was left vulnerable to aggressive entrants such as Cotton On and H&M, leaving Mr Price and and other SA clothing retailers on the back foot.
Earnings per share for the full year came in at 57.13c, placing ASC on a pretty steep PE ratio of 48. Full year dividends amounted to 21.5c, putting ASC on a dividend yield of just over 0.75%. Investors will not be buying ASC for their strong dividend payouts at this point in time.
ASC did not have positive cash generation during the period, affected largely by corporate actions such as acquisitions and additional inventories. Cash was raised during the finacial period both from issuing shares (raised roughly R560million) and borrowings to the tune of R76million (pushing total borrowings to R926million). At the end of the financial year their cash flow statement showed their cash and equivalents to be -R22,4million). While they do have R153million in the bank their are running an overdraft of over R220million.
The worry being that ASC has taken on to much debt to fund growth and acquisitions. If this is the case it will show up in the financial ratios we calculate later on.
Earnings per share for the full year came in at 57.13c, placing ASC on a pretty steep PE ratio of 48. Full year dividends amounted to 21.5c, putting ASC on a dividend yield of just over 0.75%. Investors will not be buying ASC for their strong dividend payouts at this point in time.
ASC did not have positive cash generation during the period, affected largely by corporate actions such as acquisitions and additional inventories. Cash was raised during the finacial period both from issuing shares (raised roughly R560million) and borrowings to the tune of R76million (pushing total borrowings to R926million). At the end of the financial year their cash flow statement showed their cash and equivalents to be -R22,4million). While they do have R153million in the bank their are running an overdraft of over R220million.
The worry being that ASC has taken on to much debt to fund growth and acquisitions. If this is the case it will show up in the financial ratios we calculate later on.
The graphic below shows the contribution of ASC's major divisions to their revenue and contributions to pre tax profits.
Consumer brands division brings in almost 24% of revenue and just under 31% of EBITDA (so strong margins earned on these brands and contribution to profits are bigger in percentage terms vs their contribution to revenue, while the Pharma-med division brings in roughly 46% of revenue, it only brings 41.5% of EBITDA. Showing that lower lower margins are earned in this division. The other two divisions seems pretty stable in terms of revenue and contributions to EBITDA.
A few financial ratios to mull over for ASC (calculated using our Financial Ratios Calculator):
- Debt to Equity Ratio:1.33 (more than 2 shows high levels of financial leverage).
- Current Ratio: 1.31 (A measure of liquidity. Less than one signals possible trouble in paying off current liabilities).
- Quick Ratio: 0.76 (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt).
- Return on Assets (ROA):3.32%
- Return on Equity (ROE): 7.74%
- Net Profit Margin: 4.85%
- Dividend Yield: 0.75%
Valuation:
While the financial ratios above show that ASC might not be as leveraged as we initially thought their quick ratio shows that they do not have enough liquid assets to cover their short term debt. As a large part of their assets is held in inventories. Their net profit margin is pretty thin and ROE and ROA is not the greatest either, with them paying a very small dividend.
Based on ASC's current financial results we value them at between R11.40 and R11.60. We would therefore not recommend investors buy into ASC at it's current price and wait for it to pull back before considering buying their shares. While their acquistions could boost revenue and profit numbers and lead to a lower PE ratio in future (I.e current forward PE being lower), we cannot justify a valuation on the company with a forward PE ratio of much more than 20. Regardless of how defensive the business is.
Even if their current financials are used and growth in earnigns per share is assumed to be 15% for the next 5 years and market return expected to be 8% a discounted cash flow model values ASC at just over R13 a share. Their acquisitions will have to contribute significantly to their next set of financials to justify the current share price. We will revalue them once the impact of their acquisitions become a little clearer.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
Based on ASC's current financial results we value them at between R11.40 and R11.60. We would therefore not recommend investors buy into ASC at it's current price and wait for it to pull back before considering buying their shares. While their acquistions could boost revenue and profit numbers and lead to a lower PE ratio in future (I.e current forward PE being lower), we cannot justify a valuation on the company with a forward PE ratio of much more than 20. Regardless of how defensive the business is.
Even if their current financials are used and growth in earnigns per share is assumed to be 15% for the next 5 years and market return expected to be 8% a discounted cash flow model values ASC at just over R13 a share. Their acquisitions will have to contribute significantly to their next set of financials to justify the current share price. We will revalue them once the impact of their acquisitions become a little clearer.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.