SIG – Morgan Stanley rates the stock as Underweight

Sigma Pharmaceuticals has rejected the offer from Australian Pharmaceutical Industries ((API)). The company has reiterated its view that there is potential on a stand-alone basis with identified cost savings of over -$100m.

Sigma still expects FY23 operating earnings (EBITDA) to return to similar levels as FY19. Without the merger, Morgan Stanley envisages a risk that profitability deteriorates in both companies, amid challenges in the industry.

The broker had envisaged the bulk of synergies from the merger could come through rationalisation of the distribution centre/network. The broker maintains an Underweight rating, In-Line industry view and a $0.47 target.

Sector: Health Care Equipment & Services.

Target price is $0.47.Current Price is $0.53. Difference: ($0.06) – (brackets indicate current price is over target). If SIG meets the Morgan Stanley target it will return approximately -13% (excluding dividends, fees and charges – negative figures indicate an expected loss).

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