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Sigma Healthcare Ltd SIG

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Morningstar’s Analysis

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Sigma’s IT Upgrade Causing Operational Issues While Peers Grow Stronger

Shane Ponraj, CFA Equity Analyst

Analyst Note

| Shane Ponraj, CFA |

We cut our fair value estimate for no-moat Sigma by 9% to AUD 0.63 following an earnings downgrade and changing competitive landscape. On Sept. 21 Sigma guided to fiscal 2022 underlying EBITDA increasing 5% to AUD 87 million. However, since then Sigma has faced ongoing technical issues after switching to its new enterprise resource planning system on Aug. 29, materially affecting sales to customers, and only made worse by extended lockdowns. As a result, fiscal 2022 underlying EBITDA guidance has been revised down by 14% to AUD 75 million. While management expects operational challenges to largely be resolved in fiscal 2022, the firm expects a flow-on effect on fiscal 2023 sales. Accordingly, we cut our underlying EBITDA forecasts by 9% on average over the next two years, accounting for roughly one third of our downgrade.

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Company Profile

Business Description

Sigma Healthcare is an Australian pharmaceutical distributor, wholesaler and pharmacy franchisor. The revenue growth prospects and returns of pharmaceutical distribution are subdued due to ongoing Pharmaceutical Benefits Scheme, or PBS, price reform, and regulated wholesale gross margins being capped at 7% for community pharmacy and 10% for hospitals. As a result, Sigma and its competitors, EBOS and API, are seeking to expand into unregulated revenue streams. In addition, pharmacy ownership is restricted to pharmacists, thereby excluding direct corporate ownership and requiring exposure via a franchise business model.

3 Myer Place, Rowville
Melbourne, VIC, 3178, Australia
T +61 392159215
Sector Healthcare
Industry Medical Distribution
Most Recent Earnings
Fiscal Year End Jan 31, 2022
Stock Type
Employees 156