Sigma Healthcare Limited (ASX: SIG) has delivered more than 40% earnings growth for the full year, sending its shares more than 7% higher in its first full-year results report since the $32 billion merger with Chemist Warehouse Group, which was finalised in February.
The company also upgraded the expected cost synergies from the merger to $100m from about $60m, while its logistics costs per unit fell 11% as the merged business reaped the benefits of its increased scale.
The merged business posted normalised revenue of $6 billion, up 82.2%, while normalised net profit came in at $579.1 million, up 40.1%.
Merger synergies improving
Sigma managing director Vikesh Ramsunder said the merger had created "a stronger, more integrated healthcare business, with greater scale, capability, and market reach".
"The FY25 results demonstrate the group's momentum and potential for ongoing growth," Mr Ramsunder said.
"We have made good progress executing the integration plan and today announce an upgrade to the merger synergy target from $60 million per annum to $100 million per annum to be achieved within four years.
"The performance of the Chemist Warehouse retail network was a standout. Total retail network sales to customers for the 12-months were up 14% to $10.3 billion. Like-for-like sales growth across the Australian Chemist Warehouse network was up an impressive 11.3%."
Mr Ramsunder said there was "robust" sales growth across the major product categories, including beauty, vitamins and supplements, medicines, the baby/children category, and fragrances.
"During the year, we continued to expand our portfolio of own and exclusive brand products, headlined by the launch of 269 products in the Wagner generics range in November 2024," Mr Ramsunder said.
"Our value proposition and service offering are resonating with more customers. We opened 35 new stores in Australia and internationally, which is consistent with our average annual growth rate over the last decade.
"We now have 881 franchise stores across Australia. Our international network continues to grow across New Zealand, Ireland, and UAE demonstrating that the Chemist Warehouse model is transportable and scalable in other markets."
Meanwhile, the company has decided to pull out of bricks and mortar stores in China over the next few years, with that market to be serviced wholly online.
At the end of the financial year, the group had net debt of $752.2 million, "well below the starting net debt range of $1.0 to $1.3 billion set out in the merger prospectus". Mr Ramsunder said the company had ample cash flow to self-fund its growth strategy and pay dividends to shareholders.
Analysts like the Sigma story
Jarden analysts have a $3.30 price target on Sigma shares, against the $3.03 they were changing hands for on Wednesday, and an overweight rating.
Jarden noted that Chemist Warehouse was one of the largest retailers in Australia which did not have a loyalty program, which is an area that could fuel further growth in the future.
"We like Sigma's health exposure, market position, high incremental return on invested capital and growth optionality, all of which support our circa 18% three-year earnings per share compound annual growth rate, with upside risk from international and adjacencies," Jarden analysts said.
They added that Chemist Warehouse has a "long runway for growth" via new and expanded stores, as well as room to expand in services, data, and media.
"Risks include competition, store roll out, execution and regulation," they said.
Sigma will pay a fully-franked final dividend of 1.3 cents per share, payable on September 18 to shareholders registered on September 2.
