“We lost the milk but not the cow.”
That is how Aspen CEO Stephen Saad sees the collapse of the group’s large mRNA manufacturing contract last year. It blew a hole of about R2bn in the manufacturing division’s expected ebitda and left costly sterile facilities in France and South Africa even more underutilised. Aspen had spent billions building those plants on the expectation that global pharmaceutical groups would increasingly outsource complex sterile manufacturing.
Saad’s glass-half-full response is perhaps unsurprising. Successful business builders, particularly in South Africa, almost have to be optimists. However, investors took a much dimmer view, not least because the mRNA agreement had been presented as a “take-or-pay” contract. The customer had effectively reserved capacity and was expected to pay whether it used it or not, making the subsequent contractual dispute a nasty surprise. Aspen’s shares plunged more than 30% on the profit warning and some investors cautioned that it could take years for the group to rebuild their trust.
The backdrop made matters worse. Earlier that April, US President Donald Trump had unveiled his sweeping “liberation day” tariff regime, while pharmaceutical companies also faced the threat of separate sector-specific tariffs as Washington pushed drugmakers to manufacture more in the US. “At the same time we lost the contract, there were also [new] tariffs,” Saad tells the FM. Drugmakers became reluctant to commit fresh volumes while they reassessed how the changing US trade regime might reshape supply chains. “No-one knocked on our door,” he says. “It was a bleak time.” Aspen’s shares eventually sank to around R90.
Fast-forward to today and they have recovered to about R158, helped by three developments. The first was the R28bn sale of Aspen Asia-Pacific (Apac), excluding China, which transformed a heavily indebted group into one with a small net cash position for the first time in its history. The second was the continued strength of the commercial pharma division, where normalised ebitda rose 13% in constant currencies, building on 10% growth the year before.
The third (and main) driver of the sharp second-half recovery was manufacturing. Revenue fell 10% in constant currencies as the mRNA contract dropped out, yet normalised ebitda still rose 21% to R828m, helped by a R503m settlement of the contractual dispute. The restructuring of Aspen’s sterile finished-dose-form facilities delivered about R1.2bn of profit improvement, with much of the benefit coming through in the second half and more than offsetting the R1bn contribution lost with the mRNA contract. That helped continuing operations normalised headline earnings per share (NHEPS) rise 28% in constant currencies for the full year, reversing a 24% decline at the halfway stage.
Saad says that while financial 2026 was largely about taking out costs, which is why “there’s less turnover and more profit”, 2027 should combine the full-year benefit of those savings with a meaningful rebound in volumes. Sterile revenue is forecast to grow by more than 50%, which Saad says could take turnover back to, or even above, the level achieved when the mRNA contract was still in place. The difference is that it will be generated from a much lower cost base.
That is where operating leverage kicks in. Aspen does not normally publish capacity utilisation figures, but Saad estimates that its French sterile facility is running at only about 50% utilisation and the South African facility at just 20%–25%. “Any growth now on largely fixed costs is going to give us quite a bit of upside,” he says.
An SBG Securities note illustrates just how sensitive the economics are. The broker estimates that lifting manufacturing utilisation from 40% to 50% could raise the division’s ebitda margin from 6.7% to 14.3%. The flip side is that Aspen still has to prove that the billions sunk into its sterile network can generate acceptable returns, with SBG expecting group returns to remain below the cost of capital through 2028.
Still, Saad expects the earnings recovery to continue. Manufacturing ebitda is expected to more than double in 2027, with almost all of the increase coming from steriles. Group normalised ebitda is guided to at least R9bn, more than 17% above 2026, while constant-currency NHEPS is expected to rise by more than 50%. The balance sheet reset provides a further boost, with Aspen forecasting more than R1.2bn in annual net interest savings following the Apac disposal.
One lesson from the mRNA setback is the danger of customer concentration. Saad says Aspen has deliberately changed tack. “We’ve decided we don’t want to fill it with one contract,” he says. Otherwise, “we don’t have a manufacturing business, we’ve got a contract business”. The aim now is to rebuild volumes across a broader, more diversified client base.
A growth engine for the future
The 2027 sterile recovery should therefore come from several sources. Human insulin manufacturing has already begun commercialisation in South Africa, while the tariff uncertainty that had delayed customer commitments is easing. Saad says greater clarity has helped drive “a really good pickup” in activity at Aspen’s French sterile facility. Longer term, the plants could also manufacture Aspen’s own GLP-1 products and paediatric vaccines, alongside additional third-party pharmaceuticals.
Commercial pharma, meanwhile, spans branded, generic and over-the-counter medicines. Its next major growth engine could be GLP-1-based drugs. Originally developed for diabetes, the class has become a blockbuster in the obesity market because the medicines improve blood sugar control while suppressing appetite. Mounjaro, Lilly’s tirzepatide, is one of the leaders, with Aspen holding the rights to sell, promote and distribute it across Sub-Saharan Africa.
The South African uptake has been remarkable. Saad says Mounjaro has gone from virtually nothing to more than R1.5bn in sales and accounted for about 40% of the growth in the country’s private pharmaceutical market. Aspen is now seeking registrations in Nigeria and Kenya, with a broader African rollout potentially to follow.
There is further upside potential in generic semaglutide. Developed by Novo Nordisk and sold as Ozempic for type 2 diabetes and Wegovy for weight management, semaglutide has become one of the biggest products in the global obesity market. Aspen has registered two semaglutide dossiers in Canada and is seeking approvals in Brazil, South Africa and other emerging markets. Commercialisation in Canada still depends on securing suitable active pharmaceutical ingredient supply from Dr Reddy’s, but the registrations are strategically important because countries such as Chile, Peru, Ecuador and Colombia often use approvals from stringent regulators as a benchmark when assessing new medicines.
Because the timing of registrations depends partly on foreign regulators and other factors beyond Aspen’s control, management has not included any GLP-1 revenue outside South Africa in its 2027 guidance. Saad nevertheless sees a “very high possibility” of Mounjaro sales elsewhere in Sub-Saharan Africa and of securing some semaglutide registrations during the year.
The Apac sale did more than repair the balance sheet. Saad argues that the price — about 11.5 times ebitda for businesses in territories that were “declining markets for us” — also provides a useful valuation benchmark when Aspen itself trades at about seven times forward ebitda. He points out that Aspen’s major disposals have historically fetched double-digit ebitda multiples without the group having to sell what he calls its “crown jewels”. That leaves management open to further value-unlocking transactions. Aspen’s South African operations are regarded as core, but Saad says a noncore facility or brand could be sold at the right price.
For now, buybacks look to be management’s preferred use of surplus capital. Aspen has little appetite for another large acquisition, the heavy factory investment is largely behind it and the balance sheet has moved into net cash. “We built our factories and now we’ve got to fill them,” says Saad. As long as the shares trade below the value that management believes is embedded in the underlying assets, he argues that buying back stock offers better returns than pursuing another big deal.
At about R158, Aspen trades on about 13 times prospective earnings. Analyst opinion is constructive but hardly exuberant after the share’s sharp recovery. Consensus puts the average 12-month target at about R173, with estimates ranging from about R165–R183, implying only high-single-digit upside from current levels.
Views on valuation, however, remain divided. SBG Securities argues that the share already discounts a meaningful recovery in manufacturing and that execution risk remains high. Coronation takes almost the opposite view, arguing that Aspen’s more than R13bn investment in sterile capacity is entering a more cash-generative phase and that the market is still assigning little, or even negative, value to those manufacturing assets. Anchor Capital, meanwhile, highlights the combination of improving commercial pharma momentum, cash generation, balance-sheet repair and GLP-1 expansion.
The debate now turns largely on whether Aspen can translate its substantial spare sterile capacity into sustainably higher returns.
