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Sigma Healthcare Ltd – Weak Result

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

Sigma Healthcare Ltd (ASX: SIG) is an Australian wholesale and distribution business to community and hospital pharmacy. Sigma Healthcare has the largest pharmacy network in Australia with over 1200 branded and independent stores. Sigma Healthcare has a market capitalisation of A$646 million.

Sigma healthcare - report

What are the results from Cochlear FY19?

Today (Thursday 5 September 2019) Sigma Healthcare released its 1H20 results, which is for the period 1 February 2019 to 31 July 2019. The main points are as follows:

  • Underlying revenue for 1H20 is A$1.88 billion, down 4.1 per cent from the corresponding period.
  • Underlying EBITDA for 1H20 is A$31.9 million, down 20.8 per cent from the corresponding period.
  • Underlying net profit after tax for 1H20 is A$11.2 million, down 43.7 per cent from the corresponding period.
  • The interim dividend for 1H20 is 1 cent per share. This equates to a pay-out ratio of 95 per cent.

What were the drivers of this result?

Sigma Healthcare’s management notes that the main contributor to the unfavourable result was the net impact of one-off restructuring costs. This cost is mainly due to the  Sigma Healthcare Project Pivot Transformation Program (Project Pivot) that should come into effect in 2H20 and FY21. The cost of Project Pivot is estimated around A$30-35 million. For the 1H20, A$17 million has been incurred, with total one-off costs to deliver Project Pivot now expected to be around A$33 million for FY20.

What is the outlook for Sigma Healthcare?

Sigma Healthcare’s management notes, “Progress in executing Project Pivot means Sigma remains on track to achieve $100 million plus in efficiency gains.  A slight timing delay is likely to see Underlying EBITDA for FY20 at the low end of the $55-60 million previous guidance, with FY21 remaining in line with previous expectations with growth of at least 10 per cent.”

What is the market reaction?

The initial market reaction to Sigma Healthcare 1H20 is negative. Sigma Healthcare’s share price is down around 5 per cent and is currently trading at around A$0.58 (11.10am, 5 September). Sigma Healthcare trades at a P/E ratio in the mid-teens and an annual dividend yield of around 5 per cent (fully franked).




This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

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ASR has no position in any of the stocks mentioned.

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