The healthcare company Sigma Healthcare Ltd (ASX: SIG) is not one of the most well-known companies in the S&P/ASX 200 Index (ASX: XJO). Despite that, it's now one of the largest businesses in Australia.
It currently has a market capitalisation of $34.40 billion, making it close to the size of Woolworths Group Ltd (ASX: WOW) and larger than Coles Group Ltd (ASX: COL).
Up until recently, Sigma was known for its Amcal pharmacy business and its wholesale prescription medicine distribution service, along with other businesses.
Sigma recently shot up the market capitalisation list following its merger with Chemist Warehouse, the pharmacy giant of Australia.
The Sigma chair Michael Sammells said this transaction combines "one of Australia's most recognised retail pharmacy franchisors with one of its most dynamic and efficient pharmaceutical wholesalers".
What are the benefits of the transaction for the ASX 200 healthcare company?
The Sigma chair noted in a letter to shareholders that the merged business is now Australia's largest retail network of franchised pharmacies, with 880 franchised pharmacies across Chemist Warehouse, My Chemist, Amcal, and Discount Drug Stores.
It's exposed to "structural and demographic" trends which affect demand for pharmacy products, including "an ageing population, growing healthcare spending, continued product innovation, growth in value-added services and rising health consciousness", according to Sammells.
The merged business will continue to expand its retail network in Australia and internationally.
The global growth plans could be one of the best reasons to like the prospects of this ASX 200 healthcare company. It has delivered "rapid" growth in New Zealand and recently opened stores in Ireland, China, and Dubai. It plans to expand further in those countries and it's assessing other geographies.
Sigma Healthcare may also have other options for growth, including expanding owned, private label, and exclusive brands, increasing levels of online sales, expanding in-house media and marketing activities, and other initiatives.
The merged business expects to deliver potential cost synergies of approximately $60 million per year by the fourth year of the merger, with a focus on duplicate costs and supply chain optimisation.
Is the Sigma Healthcare share price a buy?
I think Sigma is a very interesting ASX share – it's a compelling ASX 200 healthcare company for the defensive earnings, the international growth, and potential dividends. I also think it's a good thing the Sigma board are paying close attention to the related party transactions within the Chemist Warehouse business and will be overseen and governed by non-executive independent directors.
It's not cheap, but if its earnings can continue growing then it could be a compelling investment. Considering Chemist Warehouse grew operating profit (EBIT) by 35% in the first half of FY25, the future looks bright.
