Sigma Healthcare Ltd (ASX: SIG), one of the largest pharmaceutical wholesale and distribution companies in Australia, today released its full year results for the year ended 31 January 2018. Here are the highlights:
- Revenue was down 5.4% to $4.13 billion
- Although statutory net profit was up 3.5% to $55.4 million, underlying net profit was down 10.5% to $59.9 million
- Net profit has grown at a 5-year CAGR of 3.5%
- A final fully franked dividend of 2.5 cents per share was declared
- The dividend payout ratio on underlying profits was 88.7%
- Sigma announced the appointment of Goldman Sachs as its financial adviser to assist with M&A and strategic advice
Overall, the result was in line with the revised FY 18 guidance provided by Sigma and so I do not think there were any major surprises.
What I think the market could find interesting is the appointment of Goldman Sachs as an M&A adviser. Sigma has flagged that it is looking to grow its business through acquisitions and expansions into adjacencies.
Last year Sigma acquired Medications Packaging Systems (MPS) which has been growing quite rapidly and fits in with its broader strategy, so shareholders will hope for similar deals going forward.
Sigma, which owns top brands Amcal+, Chemist King, Discount Drug Stores, Guardian and PharmaSave saw its share price crash by over 30% last year. This was after one of its largest clients MyChemist, which owns Chemist Warehouse, said it would start purchasing medicines from a different wholesaler.
Although the Sigma share price looks moderately cheap with a PE ratio of 15, I wouldn't recommend buying shares in it just yet. Its competitor Australian Pharmaceutical Industries Ltd (ASX: API), which is partly owned by Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), has also struggled with its share price down 35% over the last year and I think that is indicative of broader structural issues within the industry.
Instead of Sigma and API, I'd rather buy shares in these 3 top blue chip stocks.
