In morning trade the Sigma Healthcare Ltd (ASX: SIG) share price has charged higher following the release of a market update.
At the time of writing the pharmacy chain operator and distributor’s shares are up 6% to 67.5 cents.
What was in the Sigma market update?
This morning Sigma released an update to its FY 2020 guidance in response to November 25’s first-line agreement with the My Chemist/Chemist Warehouse Group (MC/CW Group).
That agreement was for the supply of FMCG products and was effective from December 1. Though, the progressive build-up of supply means it isn’t expected to reach a full run rate until July 2020.
This first-line supply contract is for 4.5 years, with sales in the first full year of operations estimated to be between $700 million to $800 million.
To support the work required, Sigma is reinvesting some of the realised gains from the original exit of MC/CW Group, and has delayed some of the remaining Project Pivot transformation efforts and resulting benefits.
Though, it is worth noting that this does not impact the targeted gains of $100+ million from Project Pivot. Sigma remains confident of delivering on this following the actions already taken. Furthermore, around 55% of these realisable benefits have already been delivered.
FY 2020 guidance.
Whilst Sigma’s core business continues to perform ahead of expectations, this reinvestment and the delay in the remaining Project Pivot work streams, means that FY 2020 EBITDA is now expected to be $46 million to $47 million. (Or $57 million to $58 million including the benefit from the adoption of the new accounting standard AASB 16 Leases).
This compares to its previous guidance range of $55 million to $60 million.
However, its growth is expected to accelerate in FY 2021. Management will provide its guidance for the next financial year when it releases its full year results in March.
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Motley Fool contributor James Mickleboro 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.