Vaccine-Seller Litha Looks for Acquisitions Not Dividends

Litha Healthcare Group Ltd., the worst performer on South Africa’s small-cap index this year, won’t pay dividends for 2013 as the seller of flu and hepatitis vaccines looks for acquisitions.

The stock lost 31 percent this year after climbing 25 percent in 2012. The FTSE/JSE Africa Small Cap Index gained 7.1 percent in 2013, beating the 1.4 percent rise in the bourse’s all-share index. Litha slumped as much as 6.2 percent, the most since May 28, and closed 3.9 percent lower at 2.50 rand in Johannesburg, the lowest since December 2011, valuing the company at 1.36 billion rand ($137 million).

“There probably won’t be prospects of dividends in the short to medium term, because we see a lot of opportunity out there in terms of consolidation in our pharmaceutical division,” Chief Financial Officer Martin Kahanovitz said by phone from Johannesburg yesterday. “We can possibly make further acquisitions whether it be on a product basis or a business basis.”

Litha offered investors 3.90 rand a share in February as part of a transaction to include black investors that would’ve seen the company taken private and delisted from the Johannesburg Stock Exchange. Talks ended after terms weren’t agreed on, Litha said May 9, spurring a 19 percent slide in the stock since then.

Premium Expected

“With that deal falling away, obviously there was big disappointment which was reflected in the sharp fall in the share price,” Jean Pierre Verster, who helps oversee $800 million at 36ONE Asset Management, said by phone yesterday from Johannesburg. Investors would have expected a premium to the share price being paid to delist Litha, he said.

Montreal-based Paladin Labs Inc. holds a 44.5 percent stake of the company following Litha’s acquisition of Paladin’s Pharmaplan Proprietary Ltd. for 590 million rand in cash and new shares last year. Initial buyout targets will probably include drugs registered with South Africa’s Medicines Control Council, Verster said.

“We can utilize that cash better by just building further scale in our pharmaceutical division,” Kahanovitz said.

Litha’s 14-day relative strength index fell as low as 13 on May 29 and was at 31 yesterday, trading above the 30 level deemed as oversold for the first time in five days. It retreated to 27 today.

(Updates with closing share price in second paragraph.)
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