Shares in Sigma Healthcare slumped 11% after yesterday after the drugs supply group revealed the cost of cleaning up the company’s structure after losing the lucrative Chemist Warehouse supply contract.
Underlying earnings (EBIT) were ahead of guidance in FY19, although UBS notes earnings quality was affected by restructuring costs and weak cash conversion. The company has indicated FY20 underlying operating earnings (EBITDA) will be $55-60m.
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.
First half revenue was slightly weaker than expected. The main reasons were soft operating margins and higher costs for interest. The company has reiterated FY19 underlying EBIT guidance of $75m, which suggests to UBS that Sigma must now deliver a 45/55% earnings skew half on half to achieve this.
Citi continues to believe the stock is overvalued relative to the ASX Industrials because of the structural challenges associated with the base business and the execution of its capital deployment plan.