Sigma Healthcare reported underlying EBIT growth of 20% in 1H25, while Chemist Warehouse reported standalone 2H24 EBIT growth of 37%. Chemist Warehouse EBIT for the comparable trading period is 14x larger than Sigma. This cements our view that the merger is the key driver of Sigma’s share price.

The proposed date for ACCC’s findings on the Chemist Warehouse-Sigma merger is 24 October 2024.  The timeline slipped with further details provided by Chemist Warehouse and Sigma. It is not a guaranteed approval given the combined entity will be a very large operator in the pharmacy market. While some see store divestments appeasing the ACCC, we are less convinced. The first issue listed by the ACCC is the vertical integration caused by the acquisition.

The proposed merger between Chemist Warehouse and Sigma will create a business with close to $760 million of combined annual EBIT with growth of 12%-19% over the next four years. However, the first hurdle is ACCC approval which may be a drawn-out process. While there is an impressive growth profile, the prospects for rollout beyond Australia and New Zealand is still in its infancy. The upside case would see continued elevated like-for-like sales growth and a seamless integration of the Chemist Warehouse contract.