Morningstar

Morningstar, Inc.

Equity Bottom-Up

We cut our fair value estimate for Sigma by 3% to AUD 0.68 per share, reflecting marginal downgrades to our outer-year earnings forecasts. This follows the outcome of the narrow moat group's business review, which projects a 10%-plus EBITDA CAGR from fiscal 2021 to 2023. This is a touch shy of our previous expectations but not alarmingly so.
Analysts: Brian Han and Violet Li

Impetus for consolidation in the pharmaceutical distribution space has been brewing for some time, given the challenging top-line conditions and the regulatory environment. Against this backdrop, Australian Pharmaceutical Industries, or API, has seized on Sigma's loss of the Chemist Warehouse contract (and its subsequent weak stock price) as a catalyst to kick-start the consolidation.
Analysts: Brian Han and Violet Li

We have transferred analyst coverage of narrow-moat rated Sigma Healthcare.
We maintain our current forecasts and our AUD 0.70 per share fair value estimate. We forecast Sigma's revenue and earnings in fiscal 2020 to be hit by the loss of key customer My Chemist/Chemist Warehouse Group, or MC/CW. Nonetheless, our longer-term revenue growth assumptions are unchanged at around 1.5% per year, reflecting underlying growth of the Pharmaceutical Benefits Scheme, or PBS, from the beginning of fiscal…

Narrow-moat Sigma Healthcare is set to face substantial revenue and earnings declines in fiscal 2020, following the previously announced contract loss of key customer My Chemist/Chemist Warehouse Group, or MC/CW. Nonetheless, we believe this outlook is fully priced into shares, and with first-half results that tracked our expectations, we maintain our fair value estimate of AUD 0.70 per share.
Analyst: Adam Fleck, CFA

We are lowering our fair value estimate for narrow-moat Sigma Healthcare to AUD 0.70 per share from AUD 0.95, after contract renewal negotiations with key customer My Chemist/Chemist Warehouse Group, or MC/CW, failed. The materiality of the impact to Sigma is reflected in around 41% of Sigma’s fiscal 2018 group revenue being composed of MC/CW’s business, reflecting around 400 stores of the 2,000 pharmacies serviced by Sigma. Given the tender win, MC/CW is expected to sign a five-year contract…

Australia

Sigma Healthcare Limited wholesales and distributes pharmaceutical products. The Company offers prescription, over-the-counter, and generic drugs. Sigma Healthcare serves customers in Australia.

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