Sigma gains after price target upgrades by Citi, Macquarie
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The news: Analysts upgraded their price targets on Sigma Healthcare, after the pharmacy wholesaler reported a sharp drop in its half-year profit due to costs relating to its impending merger with retail chain Chemist Warehouse.
The numbers: Sigma shares gained 3.7% to $1.42 by 12:10pm AEST, having fallen 3.5% on Wednesday.
Morningstar kept its fair value estimate for Sigma at 78 cents per share. Analyst Shane Ponraj noted that Sigma's first-half underlying EBIT improved 21% on the previous corresponding period, as the company began to see the benefits of its five-year supply contract with Chemist Warehouse that commenced in July.
Citi maintained its 'neutral' rating but lifted its target price from $1.30 to $1.40. It changed its EBIT forecasts by -1% in FY25 and 3% in FY26 on higher revenue assumption from Sigma's Chemist Warehouse contract.
Macquarie, which retained its 'underperform' rating on Sigma, raised its price target 11% to $1 per share. It lowered its earnings per share (EPS) forecasts by 27% in FY25, 12% in FY26 and 10% in FY27, with EBIT estimates rising by 5%, 1% and 2% over the same period, supported by better-than-expected revenues from the Chemist Warehouse contract.
The context: On Wednesday, Sigma reported half-year profit of $3.7 million, a 67% slide year on year. The company attributed the decline to non-recurring merger and acquisition costs, preparation costs for onboarding its new Chemist Warehouse supply contract and offset by net gain on sale of non-core assets.
Sigma also said the competition regulator had further delayed a decision over its proposed $8.8 billion merger with Chemist Warehouse, with a decision now expected by 24 October.
The Australian Competition and Consumer Commission (ACCC) has previously raised competition concerns against the deal.
What they said: "We continue to believe Chemist Warehouse is a sound retail proposition, offering defensive growth," said Macquarie analysts.
"However, at current multiples we believe the market is overpaying for deal certainty as the regulatory process remains ongoing," they said.
The sources: Morningstar research, Citi research, Macquarie research
