In morning trade the Sigma Healthcare Ltd (ASX: SIG) share price is climbing in the right direction at long last
At the time of writing the pharmacy wholesale and distribution company's shares are up almost 3.5% to 89 cents following the release of its half-year results.
Key highlights include:
- Revenue fell 6.1% on the prior corresponding period to $2,020 million.
- Underlying earnings before interest and tax (EBIT) fell 8.7% to $44.2 million.
- Reported net profit after tax up 16.7% to $27.9 million.
- Interim dividend of 2.5 cents per share.
- Earnings per share of 2.8 cents.
- Acquisition of Medication Packaging Systems for $18.5 million.
- Outlook: Reiterated guidance for underlying EBIT of $90 million for FY 2018. Management positive on FY 2019.
Overall, this result was in line with the previous guidance provided by management and appears to have met the market's subdued expectations.
Underlying earnings fell as a result of a number of challenges that the company faced this year. This included a pull-back in sales of Hepatitis C medicines, the exit of a non-compliant branded customer group, and general softer consumer sentiment.
Pleasingly, management expects these challenges to be restricted to FY 2018 and believes the company is positioned to profit from the benefits of its strategic investments from FY 2019 and beyond.
One of these investments is of course the acquisition of Medication Packaging Systems (MPS) for $18.5 million.
MPS is Australia's largest provider of dose administration services to the aged care sector and to community pharmacies across Australia.
According to today's release, MPS currently enjoys a 20% market share at present, which is approximately three times greater than its nearest rival in a highly fragmented market.
Management believes MPS can continue to grow its market share and expects the acquisition to be accretive to earnings in the first 12 months.
Should you invest?
Although things appear to be improving for Sigma, I am still concerned about its future results due to its dispute with major customer the My Chemist/Chemist Warehouse Group.
Whilst it is still some way off, my fear is that MC/CW may not renew its supply agreement with Sigma when it expires in June 2019. This would put a serious dent in its earnings that would be hard to fill.
Investors may be better off looking at rival Australian Pharmaceutical Industries Ltd (ASX: API). In my opinion, if things are improving in the industry then the company behind the Priceline brand might be a better option for investors.
