API (ASX:API) share price lifts following guidance upgrade

The API result is rising after increasing its profit guidance for FY21.

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The Australian Pharmaceutical Industries Ltd (ASX: API) share price is up after the company announced a profit update for its upcoming result.

This business is behind a few different high street names including Priceline Pharmacy and Soul Pattinson Chemists.

API profit update

The company told investors that it will exceed the profit guidance it provided to the market a few months ago, despite the broad COVID-19 lockdown restrictions in both New South Wales and Victoria.

API is now expecting that its underlying earnings before interest and tax (EBIT) will be approximately $70 million and reported EBIT is going to be approximately $28 million for the year ending 31 August 2021.

The API CEO and managing director, Richard Vincent, said:

API recorded a strong trading performance through our suburban and regional Priceline Pharmacies as well as online. We also experienced elevated volumes through our pharmacy distribution business that we were not anticipating.

The company also said that the sale of its New Zealand pharmaceutical plant is expected to occur in the first quarter of FY22. That’s why its reported EBIT remains in line with previous guidance.

API has moved the date it’s expecting to report its result to 28 October 2021.

Legal action

API acknowledged and confirmed that a class action has been filed against it in Victoria’s Supreme Court. The company didn’t flag this announcement as market sensitive, meaning that management didn’t believe it would move the API share price.

According to reporting by the Australian Financial Review, this is a class action by current and former Priceline franchisees. The claim is that the company had “excessive” control over their pharmacies and made them pay fees that are in breach of state regulations.  

The franchisees are reportedly looking to “recover the benefits lost due to Priceline withholding rebates for not complying with mandated in-store product displays.”

In response, API has said that it remains focused on supporting Priceline Pharmacy franchisees through COVID-19, so that they can fully play their role in the distribution of vital medicines and that the COVID-19 vaccine and serve their communities during and beyond the pandemic.

Takeover battle

Over the past month the API share price is up more than 13%. It is currently subject to a takeover battle between Wesfarmers Ltd (ASX: WES) and Sigma Healthcare Ltd (ASX: SIG).

Wesfarmers has offered a cash proposal of $1.55 per share. The conglomerate believes its offer would deliver an attractive premium and certain cash return for API shareholders.

Meanwhile, Sigma is offering API shareholders 2.05 Sigma shares plus $0.35 cash for each API share. Sigma said at the time that this offer represented an implied value of $1.57 per API share (before ‘synergies’). API shareholders would own 48.8% of the combined business under the proposal.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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