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Why the Sigma share price is on watch today

The Sigma Healthcare Ltd (ASX: SIG) share price will be on watch today after the company released a market update this morning. The update was in relation to Sigma’s FY20 EBITDA guidance and franking credit position.

At the time of writing, there appears to be minimal market reaction to the announcement, waith the Sigm share price marginally down by 0.51% to $0.587.

What does Sigma Healthcare do?

Sigma Healthcare is a wholesale and distribution business of pharmaceutical products through the pharmacy and grocery sales channels.

The company has the largest pharmacy-led network in Australia with over 1,200 branded and independent pharmacies. These include well-known pharmacy retail brands such as Amcal, Guardian, PharmaSave, Chemist King and Discount Drug Stores.

What did Sigma Healthcare announce?

Sigma Healthcare confirmed it remains on target to deliver FY20 underlying EBITDA guidance of approximately $46 million to $47 million. This is elevated to $57 million to $58 million when the benefit from the adoption of the new accounting standard AASB 16 Leases is included in the calculation.

Despite this, Sigma Healthcare noted that one-off costs associated with transforming its business will result in generating insufficient franking credits to pay a fully franked final dividend in FY20.

The company commented that the depleted franking credit balance was due to a lag effect of the costs of transforming its business. Sigma will review this franking credit position as it progresses through the next financial year, FY21.

Sigma Healthcare’s management further commented it believes the underlying business is performing strongly, with FY20 financial results remaining on track. The company continues to expect accelerated underlying earnings growth in FY21 from its core business.

Recent activity

In mid-December last year, Sigma Healthcare’s share price declined after Australian Pharmaceutical Industries Ltd (ASX: API) sold off its shareholding in the company. The operator of Priceline, Soul Pattinson Chemist and Pharmacist Advice built up a sizeable shareholding in Sigma Healthcare in 2018 ahead of proposing a merger of the two companies. The deal ultimately fell through after the Sigma board concluded the merger was not in the best interests of shareholders.

Around one month ago on January 8, 2020, Sigma Healthcare announced the resignation of the company’s CFO Iona MacPherson. In the interim, former CFO and retail pharmacy general manager Jeff Sells has stepped into the role.

Guidance for FY21 will be provided at Sigma’s FY20 results announcement, which is now scheduled for Wednesday 25 March 2020.

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Motley Fool contributor Phil Harpur 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.