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Why Sigma Healthcare shares shot up 5% on Friday

An ASX market update saw the Sigma Healthcare Ltd (ASX: SIG) share price close 5.17% higher on Friday afternoon at $0.61 per share.

Sigma confirmed market speculation surrounding negotiation with Chemist Warehouse Group for the supply of products.

What moved Sigma shares on Friday?

Sigma’s after-market update confirmed talks with the MyChemist/Chemist Warehouse (MC/CW Group). Sigma could be set to resume the supply of fast-moving consumer goods (FMCG) to the Aussie retail group.

This announcement came shortly after an Australian Financial Review (AFR) article rumouring the deal between the two parties.

Sigma confirmed the approach and said there is “no certainty” that an agreement will come from the talks.

A further announcement will be provided after the outcome of the negotiations has been agreed by the two groups.

What was October like for shareholders?

Sigma shares edged lower in October as it closed 6.45% lower at $0.58 as at month-end. The Aussie pharmacy group had a quiet month with no major announcements.

Citi Group‘s Investor Conference was Sigma’s only ASX update in October which focused on group highlights and the rebasing of its business going forward.

Diversified earnings streams and further balance sheet strengthening are big positives for investors ahead of Sigma’s 1H 2020 results in February.

How will Sigma shares finish the year?

It’s been a volatile year for Sigma shares which have edged higher despite hitting as high as $0.69 in 2019.

The company’s 4.92% dividend yield is impressive given it is still a small-cap with a market capitalisation of $646 million.

Sigma shares look reasonably priced at 17x earnings which is around average for the ASX 300 but more expensive than Australian Pharmaceutical Industries Ltd (ASX: API).

The one red flag for me is that the Sigma share price is down 21.79% over the last 5 years and well down on its early 2000s valuation of over $13 per share. Sigma shares plunged lower in March after rejecting API’s takeover bid that it put forward in December 2018.

Sigma does have some growth potential going forward and I imagine any earnings boost would be welcomed by long-term shareholders at this point.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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