The Sigma Healthcare Ltd (ASX: SIG) share price is taking a swig of some bad-tasting medicine today.
Shares in the pharmacy operator are currently down 5.8% to $1.34 after the company released its first-half results for FY25 to the public. But the underwhelming response might have less to do with the company's numbers and more with an update regarding Chemist Warehouse, its proposed merger partner.
Sigma Healthcare sink on resilient results
Here are the key numbers from Sigma's first half results:
- Net revenue up 9% year-on-year to $1.84 billion
- Gross margin of 6.5% down from 6.6%
- Operating earnings down 46% to $20 million
- Net profits down 67% to $3.7 million
- Cash and equivalents down from $356.5 million to $234.2 million
The pharmacy supplier's net profits were impacted by one-off costs during the period. Namely an $8 million hit from the Chemist Warehouse merger proposal, with an additional $2 million carved off due to 'upfront costs' attributed to preparation for its new supply contract with Chemist Warehouse.
What else happened in the first half?
Sigma kicked off its new five-year supply contract with Chemist Warehouse in July, bolstering the company's sales in the six-month period. The deal is expected to generate $3 billion in annualised revenue.
Management highlighted an average 13% increase in like-for-like sales across Amcal and Discount Drug Stores franchise brands. However, the improvement was tempered by a 10.4% increase in operating costs stemming from the previously mentioned Chemist Warehouse costs.
The Sigma Healthcare share price performed solidly throughout the first half. Between the beginning of the half and now, shares in the company have rallied 42%, as shown in the chart above.
What did management say?
Commenting on the half-year performance, Sigma CEO Vikesh Ramsunder stated:
This has been a strategically important period for Sigma. We have begun a large new supply contract that will underpin Sigma's growth for the next five years and provide strong fixed cost absorption.
Importantly, we continued to maintain high service standards to all our customers through the process.
What's next for Sigma?
Top of mind for most Sigma shareholders is the proposed merger with Chemist Warehouse. Today's half-year announcement was accompanied by an update relating to the blockbuster deal.
The Australian Competition and Consumer Commission's (ACCC) decision on the merger has been delayed from 2 October to 24 October. This follows the regulator raising a number of possible issues surrounding the transaction in June.
Meanwhile, the company is forecasting normalised earnings before interest and tax of $50 million to $60 million for the full financial year.
Sigma Healthcare share price snapshot
Despite Sigma's earnings drop, the company's shares have moved in the opposite direction in 2024. While the S&P/ASX 200 Index (ASX: XJO) is up 6.8% to date — to a record level — the Sigma share price is 36% better off than how it finished 2023.
If the merger with Chemist Warehouse gets the go-ahead, Sigma shareholders will walk away with a 14.25% stake in the merged entity.
