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Sigma share price jumps on $172 million deal

increasing bar graph created from medical tablets
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The Sigma Healthcare Ltd (ASX: SIG) share price is outperforming today after it found a way to unlock $172 million in cash.

Shares in the drug supplier jumped 3% to 68 cents in after lunch trade while the S&P/ASX 200 Index (Index:^AXJO) gained 1.8%.

The positive investor sentiment is also lifting other healthcare stocks, although not quite as much as Sigma. The CSL Limited (ASX: CSL) share price gained 1.8% to $279.10 while the Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price added 0.6% to $62.82.

Unlocking capital

Sigma is getting an extra boost after it sealed a deal to sell two of its distribution centres at a profit for $172 million.

The land and buildings sale at Kemps Creek in New South Wales and Berrinba in Queensland were priced “well above” the original investment costs for the properties, reported Sigma.

The company will leaseback the sold properties from the buyer, LOGOS, through a 15-year agreement which includes two five-year extension options. The first-year lease cost is around $8 million annualised.

Cutting debt

Sigma originally considered selling only part of the two properties along with its new distribution centres in Canning Vale in Western Australia and Truganina in Victoria.

But management said it’s happy with this outcome instead, which will allow it to reduce net debt to below $100 million.

“Owning and managing the construction phase gave us control over the build and created value for shareholders,” said its chief executive Mark Hooper.

“By completing this transaction, we benefit from LOGOS as the owner and manager of our tenancies at Kemps Creek and Berrinba, while capturing the latent value that was not previously recognised on Sigma’s balance sheet.”

Road to redemption

Sigma restructured its business after losing a key customer contract with Chemist Warehouse and believes its distribution centre network is the best in the industry.

The stock has come a long way in turning around investor sentiment and COVID-19 may be helping. In this volatile environment that’s created by the pandemic, Sigma’s relatively stable income stream is more highly prized than before.

Don’t bank on a dividend

But the capital release from the sale and leaseback of the properties is unlikely to change management’s decision to suspend paying a dividend this year.

Sigma scrapped its final dividend when it released its full year result in April and said it will also not pay an interim dividend in 2020.

The company will release its first half profit results on September 10.

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Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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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