Sigma Pharmaceutical

Friday 16th September 2011

Pharmaceutical services company Sigma Pharmaceutical (ASX: SIP) has been upgraded to neutral from underperform by Credit Suisse, and to buy from hold by Goldman Sachs after Sigma's first half 2012 results.

Credit Suisse raises its target price from 43 cents to 61 cents while Goldman Sachs raises its target price from 54 cents to 72 cents. Credit Suisse says "this was a strong result from Sigma and has significantly de-risked the company." “Market share growth of 1-2% in the half and a net cash position of A$88.5 million gives Sigma a significant advantage over its smaller competitors."

Goldman Sachs sees cost savings, but highlights the fact that Sigma's largest customer, which generates about 25% of revenue, is out of contract next month and there's no guarantee Sigma will retain the customer.

Sigma Pharmaceuticals has some of the most recognised pharmacy retail brands in Australia including Amcal, Amcal Max and Guardian. It also works with independent pharmacist customers, providing a range of retail and pharmacy programs and services.

SIP announced a net profit of $26.7 million for the half year ending 31 July 2011. Net profit from continuing operations was $27.9 million which compares to a net loss of $9.2 million for the prior corresponding period. The stronger profit was driven by improved operating performance and lower interest costs. EBIT growth of 55% to $38 million mainly reflected the strong growth in underlying sales.

Operating cash flows were strong at $105.9 million compared to $40.5 million in the prior corresponding period. The company is in a positive cash position at the half year end.

Sigma’s CEO said, “We are very pleased with the results which reflect the progress we have made to date in rebuilding Sigma.” “Our focus will continue to be on profitable growth and improved working capital management.”

Contact IRG on 0800 437 8489

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Recommendation sourced from the IRESS software trading platform

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