The Sigma Healthcare Ltd (ASX: SIG) share price has rocketed higher this year by more than 160% as investors took in the news that it's planning to merge with Chemist Warehouse.
Following the recent Australian Competition and Consumer Commission (ACCC) approval of the transaction, investors can now start thinking about Sigma Healthcare as the combined business.
The merged company will have a strong presence in Australia, and the two sets of leadership are excited by the potential to grow the store count and extract cost synergies.
One expert certainly thinks it's not too late to invest in the business. Let's look at who it is.
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Broker calls Sigman Healthcare shares a buy
According to reporting by The Australian, the broker Morgans Financial has raised its rating on the ASX healthcare share to add.
Since 3 December 2024, the Sigma Healthcare share price has fallen by more than 9%, making it lower-priced and better value.
The companies point to a number of positives about a tie-up between the two pharmacy businesses.
Chemist Warehouse said in its scheme booklet to shareholders that the merged group will have the "potential to unlock significant synergies and efficiencies" and that it will create a "leading retail pharmacy franchisor and full-line pharmaceutical wholesaler and distributor."
This deal will "combine Sigma's extensive, automated distribution infrastructure and logistics capabilities with Chemist Warehouse's leading retailer and marketing experience".
Excluding synergies, the combined business would have made an operating profit (EBIT) of $605.5 million in the 2024 financial year.
How big could the synergies be?
Chemist Warehouse thinks that it can find a number of synergies, including general and administrative costs and supply chain optimisation. Initial estimates suggest cost synergies could be $60 million per year and be achieved by the fourth year after the deal is implemented. Full synergies are expected to be achieved in the fifth year after a deal is done. However, the one-off costs to achieve those synergies are estimated at $75 million.
Leadership approval
The chair of Chemist Warehouse, Jack Gance, said in a letter to shareholders:
Chemist Warehouse has an enviable track record of consistent year-on-year growth in both the Chemist Warehouse Retail Network and Chemist Warehouse Retail Network Sales.1 In the 20 years to 30 June 2024, the number of Chemist Warehouse Retail Network stores has increased by approximately 11 times and Chemist Warehouse Retail Network Sales have increased by approximately 57 times. One of the key drivers of our success has been developing and maintaining strong relationships and alignment with our franchisees, many of whom are shareholders.
The transaction represents the next step of our evolution. The Chemist Warehouse Board believes that the combination of Chemist Warehouse and Sigma makes strong commercial sense and represents a compelling opportunity for Chemist Warehouse shareholders.
Foolish takeaway
I don't think it's too late to invest in Sigma shares – in fact, it's cheaper to buy now than it has been for most of the last month.
In my view, the business still has a lot of growth potential in Australia as well as internationally – it's currently in New Zealand, Dubai, Ireland and China. The international growth potential looks very promising and could help drive earnings and shares higher for a long time to come.
Overall, I'm optimistic about the business.
