Sigma Healthcare surges higher
ASX 200 stock Sigma Healthcare shares are riding high on the news of proposed merger not being opposed.
Sigma Healthcare Limited (ASX: SIG) has received a significant endorsement from the Australian Competition and Consumer Commission (ACCC) with the decision not to oppose its proposed merger with Chemist Warehouse Group (CWG), contingent upon Sigma’s provided undertakings. This regulatory approval marks a pivotal step forward for Sigma’s growth strategy, enabling the company to advance confidently with the merger process. The proposed merger is expected to create a stronger, more competitive business, accelerating Sigma's long-term ambitions for sustainable growth and maximizing stakeholder value.
Sigma’s 1HFY25 results underscore the company’s robust operational performance and strategic momentum. Normalized revenue increased by 17.3%, boosted by the onboarding of the CWG supply contract from 1 July 2024 and 13.0% like-for-like growth across its Amcal and DDS brands. Sigma efficiently managed a substantial 57% increase in volume in July, while retaining 35% of wholesale capacity to accommodate future growth. Service metrics remained strong, with a 99% delivery-in-full rate and 94.5% stock availability. The newly established 5-year CWG supply contract is anticipated to add an annualized $3.0 billion in revenue, including approximately $2.0 billion from new PBS supply, marking a substantial revenue stream that reinforces Sigma's growth outlook. Financially, Sigma achieved an 8.8% increase in gross profit for 1HFY25. However, gross profit margins declined slightly from 6.6% to 6.5%, reflecting the shift in product mix towards lower-margin PBS medicines. Statutory EBIT was $6.9 million, impacted by one-off costs totaling $8.4 million associated with the CWG merger proposal and $2.8 million in preparation costs for the CWG contract’s launch. Nonetheless, the revenue generated from the CWG contract is expected to drive fixed-cost absorption and enhance Sigma’s profitability profile over time.
Sigma’s competitive positioning within the resilient wholesaling sector of healthcare industry offers robust growth potential even amidst broader economic uncertainties. The CWG supply contract’s contribution, which began in early July, provides a strong growth tailwind and underpins Sigma's confidence in its guidance of normalized EBIT between $50 million and $60 million for FY25. Over the past two years, Sigma has executed on its strategic objectives, strengthening its core business, enhancing operational efficiencies, and advancing its growth pipeline. Moving forward, the company is well-positioned to capitalize on new volume growth, drive brand expansion, diversify its revenue streams, and implement transformational changes to support long-term growth and stability. The CWG merger and contract exemplify Sigma’s ability to deliver on strategic initiatives that bolster its market position and shareholder returns.
Source: Company’s Report
Veye Pty Ltd(ABN 58 623 120 865), holds (AFSL No. 523157 ). All information provided by Veye Pty Ltd through its website, reports, and newsletters is general financial product advice only and should not be considered a personal recommendation to buy or sell any asset or security. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation, or needs. You should look at the Product Disclosure Statement or other offer document associated with the security or product before making a decision on acquiring the security or product. You can refer to our Terms & Conditions and Financial Services Guide for more information. Any recommendation contained herein may not be suitable for all investors as it does not take into account your personal financial needs or investment objectives. Although Veye takes the utmost care to ensure accuracy of the content and that the information is gathered and processed from reliable resources, we strongly recommend that you seek professional advice from your financial advisor or stockbroker before making any investment decision based on any of our recommendations. All the information we share represents our views on the date of publishing as stocks are subject to real time changes and therefore may change without notice. Please remember that investments can go up and down and past performance is not necessarily indicative of future returns. We request our readers not to interpret our reports as direct recommendations. To the extent permitted by law, Veye Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss, or data corruption) (as mentioned on the website www.veye.com.au), and confirms that the employees and/or associates of Veye Pty Ltd do not hold positions in any of the financial products covered on the website on the date of publishing this report. Veye Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services.