Sigma Healthcare Limited (ASX: SIG) is one of the largest pharma wholesaler and distribution businesses in Australia. Major brands under pharmacy led-network are Chemist King, Amcal, Guardian, PharmaSave, and Discount Drug Stores.
The company has footprints in the hospital pharmacy distribution market through its Sigma Hospital Services business. SIG also provides dose administration aid and related services through its Medication Packaging Systems business and the supply of medical and allied products through its Medical Industries Australia business.
SIG decided not to renew the supply contract with MC/CW which is going to expire in 2019. For that matter, SIG has initiated a major business transformation program – Project Pivot. The program has identified $100 million efficiency gains over the next two years. Hence, the motive of the program will be to increase cost saving.
Financial Performance FY19: Underlying EBITDA of FY19 came in at $ 90.5 million against $ 99.8 million in the previous year, recording degrowth of 9.2%. However, EBIT of $ 76.2 million was above the guidance provided by the company.
SIG recorded underlying revenue of $ 3.98 billion in FY19 as compared to $ 4.10 billion in FY18, degrowth of 2.9%. EBITDA margins came in at 2.28% as compared to 2.44% in FY18.
Capital Expenditure and Debt Profile- SIG will largely complete its capex plan by the end of FY21. Debt on the balance sheet for FY19 stood at $ 243 million which is expected to be reduced to circa $ 100 million by the end of FY20.
Share buy-back plan: In October 2012, SIG announced an on-market share buy-back of up to 10% of its issued ordinary shares. This buy-back was refreshed in March 2018 to provide capacity to buy-back a further 10% of issues ordinary shares. Buy-back program for FY19 will be less active due to the capital investment program
Guidance and Outlook:
- SIG confirms EBITDA levels at $55-60 million for FY20, and by FY23, the management expects EBITDA back to FY19 levels.
- SIG aims at achieving $100+ million per annum efficiency gains in the next two years.
- High dividend payout ratio is likely to be maintained in the future
- Management expects strong balance sheet with debt circa $ 100 million by FY20
- 2HFY20 results are likely to be impacted by the MC/CW exit. However, it will be offset by Project Pivot which is a cost saving transformation program.
Conclusion: SIG has declared a final dividend for FY19 of 2.0 cents/share. Total dividend for FY19 comes in at 3.5 cents /share which represents 80.1% of PAT. The stock is trading at A$ 0.525, it is trading at a PE of 14x and dividend yield comes in at 6.54%. In the past one-year SIG has underperformed the overall markets and given a negative return of 33.54% to its shareholders.
SIG has adopted cost-saving, and efficiency program is strictly working to bolster the business key parameters. Management expects the guidance given by the company to be achievable.
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