Sigma Healthcare Ltd (ASX: SIG) shares were bouncing around on Thursday.
The Chemist Warehouse owner's shares were up as high as $3.20, just short of a 52-week high, before closing down at $2.94.
Should you be taking advantage of the pullback or should you wait for a better entry point? Let's see what analysts at Bell Potter are saying.
Image source: Getty Images
What is the broker saying?
Bell Potter notes that the pharmacy chain operator and distributor delivered a half-year result that was comfortably ahead of expectations. It said:
Key numbers in the SIG half year were comfortably ahead of market consensus and our forecast. Referring to normalised earnings which excludes costs associated with the merger, Revenues $5.1bn (+15% vs pcp i.e. +$250m) and EBITDA $616m (+18.3% vs pcp) are the highlights. GP margin was preserved at 18.3%, hence no dilution from the sale of the high price – lower margin GLP-1 drugs. Earning leverage is obvious with overheads increasing by $32m relative to the much larger increase in revenues and gross profit.
However, that's not to say there weren't any negatives. One was a significant increase in working capital. The broker highlights:
The negative in the result was the $195m increase in working capital which constrained net cash from operations to $317m – a relatively poor conversion rate on EBITDA. The WC increase is seasonal across the industry. Disclosure around margins across the multiple businesses making up other revenues remains non-existent.
Should you buy Sigma shares for Chemist Warehouse exposure?
According to the note, the broker is sitting on the fence with this one and has reaffirmed its hold rating and $3.00 price target.
This is broadly in line with where its shares are trading today.
Although it concedes that Sigma delivered an excellent result, it believes its shares are fully valued at present. It also highlights that the escrow period for founders ends in August, which could mean some large share sales from insiders. It concludes:
We regard 1H26 as an excellent result. The earnings leverage is a standout and there is no indication that the gross margin is likely to weaken for the foreseeable future. SIG is only part way through its cost out program, hence good justification for ongoing EPS growth for at least two to three years. The major risk remains the completion of the escrow period for founders in August 2026. TP unchanged. EPS upgraded by 5% and 11% in FY26/27 respectively.
