SIG - Sigma Healthcare

In keeping with integrity, my great quality, I was forced to exit at a loss from SIG this morning. If they don't go, then it's bye bye bro.

Suing your largest customer then not turning up to renew the contract. Woops. 37% smack down as the contract goes elsewhere. Maybe they should sell to kogan and go online.

notting said:

Suing your largest customer then not turning up to renew the contract. Woops. 37% smack down as the contract goes elsewhere. Maybe they should sell to kogan and go online.

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Not pretty. Got in at 72c before. Ouch.

But just added a bit more. So no one will know what I did, when I did it

McLovin said:

What are they targeting? I'd be interested to know because they've been such a low margin, wc intensive business for years (a few years back a shareholder could easily have wondered if the business was being run to enrich pharmacists!). I'd be interested if they could start getting paid sooner, 75 days is a bit rich.

API, Clifford Hallum, SIP they all seem to suffer the same problem, they're getting spitroasted ('scuse the French) by their suppliers and their customers.

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This is my post from 2013. It's interesting to work backwards from today's announcement. Three hundred million dollars in cash released from WC by the loss of this contract and only a $25m-$35m hit to EBIT. Woeful economics in this industry.

On the other hand, $500m mc on a business that will *hopefully* be receiving $300m in cash in the next twelve or so months and be left with a business generating EBIT of ~$45m.

Using the same process, McLovin,

galumay said:

Very happy I overcame any biases at play and held on when they dropped. I came close to selling as even at sub-80c I was well in profit.

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I sold out in the end in Sept 17, lost any conviction the business was deserving of my capital! Got out in the mid 80s and made a nice profit plus good dividend yield over the time I held.

Very happy to not be holding today!

McLovin said:

This is my post from 2013. It's interesting to work backwards from today's announcement. Three hundred million dollars in cash released from WC by the loss of this contract and only a $25m-$35m hit to EBIT. Woeful economics in this industry.

On the other hand, $500m mc on a business that will *hopefully* be receiving $300m in cash in the next twelve or so months and be left with a business generating EBIT of ~$45m.

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They've since improved on the receivables. Down from that 70 days to 49days last FY17.

Cash cycle also improved.

Practically no debt. Low margin but awesome cash flows. With that potential $300M cash, selling for $500M... Backed up my truck today.

See how it goes, might unload others to hopefully bottom feed a bit more.

The boss, Mark Hooper, looked surprisingly happy and even a little smug today. Perhaps he knows that EBOS who picked up the contract are going to be destroyed by it! They haven't given guidance only said it's a 1B contract and should make good profits! Hardly encouraging news.
SIG have a fair bit of experience in what can go wrong!!
I really don't want them go give all the money back to shareholders. I hope that do something much smarter.

notting said:

The boss, Mark Hooper, looked surprisingly happy and even a little smug today. Perhaps he knows that EBOS who picked up the contract are going to be destroyed by it! They haven't given guidance only said it's a 1B contract and should make good profits! Hardly encouraging news.
SIG have a fair bit of experience in what can go wrong!!
I really don't want them go give all the money back to shareholders. I hope that do something much smarter.

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Hopefully a big share buyback and some acquisition. API might make another tilt soon? Third time lucky?

Got to admire management who are willing to walk away from a big contract because they can't make the numbers work. And this doesn't look like because SIG doesn't have the scale or the reach to deliver to CWH.

It will be interesting to see the contract with EBO, see if there is a clause or way for Chem Warehouse to buy from 'others!!!!' if they feel like it or EBO can't keep up the supply!!!!!!!!!!!!!!!!!!!

notting said:

The boss, Mark Hooper, looked surprisingly happy and even a little smug today.

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From his statement

Conclusion
Mr Hooper concluded, “The decision on the MC/CW contract creates an important pivot point for Sigma. It may be a step back in our short term financial results, but it improves the risk profile of our earnings and also releases significant capacity to better leverage our infrastructure and resources in areas that can provide long term sustainable growth."

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And the market said "yeah, sure, who are you kidding" and smashed it 40%.

Could be a good buying opportunity for SIG.

I feel that the termination of the supply agreement with Chemist Warehouse may have already been priced in as this should not be a surprise to any shareholder this was advised in May 2017 and since they started legal proceedings it was very clear that there was no coming back to repair the relationship with CW.

The drop in price may have been an overreaction for the CW announcement but more so to the profit downgrade from 90m to 75m EBIT for FY19, which was not really impacted by the CW deal as this supply agreement terminates at 30 June 2019 more so softer sales...

I'll be watching this space.

Wouldn’t waste time investing in SIG, fairly valued to expensive now.. a lot more risk to come as they attempt to create some earnings growth..

Country Lad said:

From his statement


And the market said "yeah, sure, who are you kidding" and smashed it 40%.

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I laughed!

The way the statement reads isn’t encouraging. If they diversify into something they’re good at, then great! Fraught with danger if they just acquire to make up the revenue.

It would not have been a pleasant task for the likes of chief executive Mark Hooper, chairman Brian Jamieson and well-known directors like Kate Spargo who were buying shares as part of the employee share plan just days before the stock price nearly halved.

The directors collectively acquired about $50,000 worth of shares between June 28 and June 29 at around 80c each with Hooper and Jamieson accounting for the big share purchases.

The stock started the new financial year on Monday July 2 by nearly halving in price to a low of 44c on the news that Chemist Warehouse will be dumping Sigma as a supplier next year in favour of Kiwi group, EBOS.

There's nothing much you can do from this point besides giving other investors some faith in a stock that will need more than a few vitamin pills to rediscover its vigour.

Within days Hooper led the charge, picking up one million shares at 46.5c each.

Jamieson also clocked in for 50,000 shares at 48c. And we don't know if he was trying to send a message about his changed financial circumstances by acquiring the shares via his company Timaru Close Pty Ltd - not Brians Maserati Pty Ltd which was used to acquire the highly prices stock a week earlier.

Mirvac Group director Christine Bartlett also got in on the act, picking up 10,000 shares.

Spargo, and former AFL finance boss Ray Gunston have yet to buy up stock at these bargain prices, but Gunston isn't shy of a challenge - he took on the CEO job at AFL club Essendon as the supplements scandal washed through.

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Perhaps they were anticipating that the bad news of losing Chemist wharehouse had well and truely being priced in.
When it tanked further they went crazy buying more.
Perhaps there going to make a take over bid of EBO when it's trading at 2c

In Trading Halt.

Majority holding from API at about 12%.

A takeover?

Sigma tried to take over API a couple times before. Looks like it's payback this time.

Merger proposal, not takeover. Same difference?

I called into the SIG teleconference. There were a few questions from three guys... my takeaways:

The board is awaiting Accenture's report (expected early Jan 2019) before making any recommendation.

As stated in the news release, API approached SIG around Oct. The board is not opposed to the idea of a merger per se, industry consolidation is "good"... but of course the price have got to be sensible for SIG shareholders.

My guess is at the current 68c equivalent, it might not represent much value for those who bought in a year or two ago.

Hooper was saying, as you would, that the takeover and the lost Chemist Warehouse contract doesn't affect Sigma's investment/operating decision and grand strategy. Not at all .

That the two brand spanking new DC in Sydney and Melbourne are long term investment that'll be use in the planned growth opportunities anyway.... although a sublet is possible and I'm guessing API's taking over will greatly optimised these capital assets.

There was a question on his take on what the ACCC will do... seeing how they've knocked back API's previous two attempts. He might be right that the landscape have changed a fair bit since the previous proposals/knockbacks...

There's EBOS trying to take over the Pacifics; DHL, the CW etc.. That and API wouldn't be forking out some $100M to try a third time without being fairly confident, this time, they can convince the ACCC this merger will be good for the Aussie battlers.

Just showing off right now.... but my calculator works


See how if the asking price [red constant line, at 49c a share] falls below your estimates, preferably in the gold/orange area... that's a good pitch to strike at.



OR... combining Graham's valuation estimates... the then market price at 49c implies return of 10%p.a. whereas the seller is expecting less than 1%p.a. return.

Combine that with the "normalised" earnings, the maturity of Sigma's business [as shown by its stable earnings since 2014]... and ignoring the potential upside from its new ventures into hospital privatisation around Australia... the odds of it turning out well buying at 49c was pretty good.

"According to the release, Australian Pharmaceutical Industries has made an offer to merge the companies with a cooperative approach so that Sigma shareholders will receive the equivalent of 68.6 cents for every share they own.

This offer comprises 23 cents per share in cash and 0.31 Australian Pharmaceutical Industries for every Sigma share. Sigma’s shares last closed at 40.5 cents, meaning this offer equates to a premium of 69%."

At today's sp of $.565, I'm seeing some value - yet how it plays out is anyone's guess. API sitting at 12.5% on the registry

https://au.finance.yahoo.com/news/why-sigma-healthcare-share-price-210830715.html

Motley Fool reports

Why the Sigma Healthcare share price plunged 12% on the ASX yesterday

Lachlan Hall
Motley Fool 14 March 2019

Sigma Healthcare Ltd (ASX: SIG) share price plunged 12.3% on the ASX yesterday to lead the ASX losses after the company provided an update on the proposal it received from Australian Pharmaceuticals Industries (ASX: API) in December 2018."

The Board of Directors has decided the API proposal is not in the best interests of Sigma shareholders, and the share price plummeted on the news, falling to $0.535 per share – its lowest level since early December 2018.

What did management say in the update?"
Management stated that since January 2019, API and Sigma have engaged in a limited form of due diligence focused on the synergy and regulatory workstreams which included mutual sharing of high-level information through virtual data rooms and in-person due diligence sessions. The due diligence confirmed a sound basis for $60 million per annum run-rate synergies assumption, largely due to supply chain consolidation to Sigma-owned warehouses.

On 4 March 2019, Sigma received a letter from API reconfirming its non-binding indicative proposal on essentially the same terms as the indicative proposal received from API on 11 October 2018. This initial bid was for API to acquire Sigma, via a Scheme of Arrangement, for 0.31 API shares plus $0.23 cents in cash for each Sigma share held.

Management also said the outcome of its Sigma standalone business review has identified cost efficiencies of over $100 million that are deliverable by Sigma as a standalone business in the next 18-24 months, separate from the $60 million of synergies identified.

As a result of the above, the Board of Sigma has concluded that the API Proposal is not in the best interests of Sigma shareholders and will not recommend entering into the Scheme of Arrangement.

So where to now for Sigma?
These mergers and acquisitions tend to have a little bit of cat-and-mouse about them, and I wouldn’t be surprised if this is simply a tactic by the Sigma Board to bring API back to the table with a juicier offer.

Having said that, betting on M&A approvals is risky business given the regulatory and anti-competition hurdles that need to be cleared even once the Board and shareholders have approved any deal. While management believes they can target significant cost savings in the next 18-24 months, I’d be wary given Sigma’s profitability and potential growth outlook.

If you’re willing to look outside the healthcare sector, I’d be checking out these top growth shares that have been tipped as market beaters.