Our opinion on the current state of AIP.

Adcock (AIP) is a leading supplier of pharmaceuticals to both the private and public sector in South Africa. It has also diversified to India and other sub-Saharan countries. The business that Adcock is in is dominated by the government's "single exit price" mechanism which determines the price for each type of medicine. In terms of this, Adcock was only permitted to increase its prices by 1,3% on regulated medicines in the 2019 year. The problem with this "cost-plus" approach to pricing is that it does not allow the company to make significant profits from pricing at what the market will bear. Since some of the ingredients of medicines are imported, it also makes the company vulnerable to the strength of the rand. To win government contracts to supply medicines, the company has achieved level 1 B-BBEE empowerment status for its continuing operations. Bidvest obtained a strong interest in the company (50.1%) and basically controls its board of directors. Bidvest is trying to sell this interest to a Black empowerment entity but claims that none of them have sufficient capital to buy the share for R4,8bn. Now the company wants to diversify away from the single exit price mechanism by moving into baby care products and other products which are unregulated. In its results for the year to 30th June 2023 the company reported revenue up 5% and headline earnings per share (HEPS) up 12%. The company said, "We welcome the recent 'top-up' SEP adjustment of 1.73%, following the 3.28% increase granted in January 2023, which will assist in alleviating the margin pressures on our price-regulated basket of products". Technically, the share was in a long-term downward trend which came to an end in September 2021. We suggested that you wait for this break up through the long-term downward trendline. The break came on 3rd September 2021 at 4548c. Since then the share has moved up to 5540c. We regard this as a solid investment for private investors. At the current level the share is on a P:E of 9,87 which seems reasonable for a defensive share.