One of the biggest pieces of ASX news this week was the revelation that Chemist Warehouse shares might, at long last, be coming to the Australian stock market.
As we covered earlier this week, rumours are abounding that Chemist Warehouse might make its long-awaited ASX debut through some kind of 'reverse-merger' with ASX 300 healthcare stock Sigma Healthcare Ltd (ASX: SIG).
Sigma shares were quickly halted from trading amid these rumours, with the company confirming that "an announcement relating to a potential material transaction" is on the way. The shares have reportedly been halted until at least next week to "ensure the market is not trading on an uninformed basis while those discussions are ongoing".
So we don't yet know if Chemist Warehouse is indeed coming to the public markets. But I'm excited anyway. That's because Chemist Warehouse — if it does eventually list on the ASX — is a company that ticks almost all of my boxes as a potential investment.
Why am I keen to buy Chemist Warehouse shares?
Chances are most of us have visited a Chemist Warehouse somewhat recently. After all, this is a pharmacy chain that, according to a recent analysis from EY, "now commands over 50% market share in Australia".
Chemist Warehouse (at least in its current form) was founded back in 1993. So this is quite an accomplishment. Its controversial (yet evidently lucrative) business strategy of sidestepping Australia's strict pharmaceutical regulations that limit pharmacy proliferation has proved to be a winner.
My favourite investments usually have at least some of the following characteristics
- a market leader in its industry
- indication of the presence of a strong economic moat
- operating in a defensive sector that is resistant to recessions and inflation
Chemist Warehouse seems to tick all three boxes.
It's clear that the company commands a leading position in the pharmaceutical industry if EY's analysis is to be believed.
Chemist Warehouse has strong brand power, as well as an obvious pricing advantage. Both of these moats have arguably allowed the company to expand at the expense of competitors.
And pharmaceuticals and medicines are highly defensive markets. When most of us are sick, we buy the medicines and pharmaceuticals that help us ride it out, regardless of economic conditions.
Private companies and public knowledge
Of course, I'll be doing some due diligence before I actually pick up the shares. Even now, Chemist Warehouse remains a private company. This means that details such as internal operations, financials and other information that public companies have to disclose remain unavailable to the public.
I'll want to get a good look at this information before buying up shares. I'll also want to buy the company at a price that makes sense. Not on whatever it trades at when it first lists.
But even so, I'll be excited to pick up some shares if and when the company eventually joins the ASX. Provided there are no red flags, of course.