Health Check: Ahead of Chemist Warehouse merger, brokers ring bell on ‘overvalued’ Sigma shares

Ahead of next week’s reverse merger with Chemist Warehouse becoming effective, Sigma Healthcare shares are being called out as overvalued by some analysts.

The word from the mount is that Sigma shares are a tad overcooked. Pic via Getty Images

• Some brokers reckon Sigma Healthcare shares are overpriced ahead of pivotal Chemist Warehouse merger

• Gut-health play Biome gets some FaBA-lous financial backing

• Ahead of more trial results, stem cell play Cynata has its eyes on the prize

In a week’s time, the $30 billion reverse merger between Sigma Healthcare (ASX:SIG) and the hitherto unlisted Chemist Warehouse becomes effective, more than a year after the union was conceived (reportedly at a downmarket inner Melbourne motel).

That should be a cause for celebration, but some pundits reckon Sigma shares are overcooked after rising more than 170% over the last year.

In a fresh note, Macquarie Equities maintains the stock as an ‘underperform’.

‘Why pay more?’, the firm suggests, which sounds like a cheeky riff on Chemist Warehouses ‘stop paying too much’ slogan.

There’s actually nothing wrong with Chemist Warehouse's performance, given the ubiquitous chain reported December half sales growth of 10%.

Macquarie says this was driven by the group’s “differentiated front-of-store offerings of household goods, health and beauty and fragrance”.

Since 2010 the chain has opened an average of 30 stores per year, but this run rate increased to 40 stores in the half.

Macquarie expects the combined entity to grow underlying earnings by a compound average 38% over the next three years.

“However, our bullish earnings forecast still suggests downside to the current share price.”

The firm values the shares at $2.68, a 5% discount to the prevailing $2.81 at the time of writing the report.

Barrenjoey this week downgraded the stock to 'underweight' with a price target of a mere $2.05 per share.

Citi takes the middle road and values the stock at $2.50 – but maintains a ‘neutral’ call.

Citi says the group looks to be on track to achieve combined underlying earnings of $800 million in the first full year post-merger.

But it’s all in the price, innit?

Biome wins deep-pocketed backing for probiotics program

In life sciences, any funding is good but if it doesn’t come out of shareholders’ pockets then all the better.

In this vein, probiotics play Biome Australia (ASX:BIO) has won support from the local Food and Beverage Accelerator (FaBA), to develop jointly Biome’s probiotic strain, BMB-18 (Lactobacillus plantarum).

The work is hosted by The University of Queensland, in collaboration with  the Queensland University of Technology, the University of Southern Queensland and UniQuest.

We hadn’t heard of FaBA, but it is a $160 million initiative “to foster  collaboration between industry and university researchers, with the goal of encouraging food and beverage product innovation".

At its discretion, Biome will contribute up to $550,000 to the partnership over the next two years, with no funds due until project sign-off.

Biome retains ownership of the asset.

FaBA will macth the project budget.

FaBA is backed by $50 million funding from the Australian Government Department of Education  Trailblazer Program.

We hadn’t heard of that one, either.

A week ago, Biome released the results of in vitro studies, which showed BMB-18 had the ability to modulate  immune responses and inflammation, reduce oxidative stress and “maintain intestinal barrier integrity.”

Thus, BMB-18 could be helpful for chronic intestinal diseases or food intolerances.

Oxidative stress is linked to cardiovascular diseases, neurodegenerative disorders, and other chronic inflammatory diseases.

“This new data provides Biome with critical insights into the functional characteristics and potential downstream applications for the novel strain,” says Biome founder and CEO Blair Vega Norfolk.

“As Biome continues the development of BMB-18 … there is a significant potential commercial pipeline for the strain for new product development and also broadening the use of existing products.”

Biome shares have more than doubled over the last 12 months and jumped up to 7% this morning.

Keep an eye on ‘mini Mesoblast’ Cynata

Following on from Mesoblast’s US approval for its childhood Graft versus Host Disease (GVHD) treatment, Cynata Therapeutics (ASX:CYP) is another stem-cell player to watch as it prepares for imminent trial results.

The company is funding its own trials for acute GvHD and diabetic foot ulcers (DFUs) and has partnered programs for osteoarthritis and kidney transplants.

Cynata announced the phase I DFU results in early December 2024.

The 30-patient trial met its primary objectives of safety and the efficacy measures of wound heling, reduced pain and improved quality of life.

The company expects to complete enrolments in the phase II GvHD trial in the current half, with first results in the December half.

Results for the first cohort in the phase I/II kidney trial are also due to appear in the current half.

Meanwhile, enrolment is complete for the phase III osteoarthritis trial, with results in the June half of 2026.

As with Mesoblast, Cynata adopts the allogeneic approach by which donor cells are multiplied and stored for off-the-shelf use (as opposed to using the patient’s own tissue).

Cynata is the only clinical-stage company in the world trialing induced pluripotent stem cells (IPSCs), from which the healing agent – mesenchymal stem cells (MSCs) – are derived.

IPSCs promise to produce a limitless number of high-quality and high-potency doses from a single donor.

Cynata’s stem-cell manufacturing platform, Cymerus, promises to overcome the obstacles of ensuring potency and consistency at scale.

GvHD occurs when the transplanted cells recognise the recipient’s cells as 'foreign', with the graft attacking the host’s tissues.

Only about half of patients respond to the current first-line treatment of corticosteroids.

Cynata shares have popped up almost 50% over the last year, but the company’s $50 million is a fraction of Mesoblast’s $4 billion worth.

Granted, Cynata is not as far down the track.

The company estimates the global addressable market for osteoarthritis at US$11.6 billion, compared with US$9.6 billion for DFUs, US$5.9 billion for kidneys and a relatively modest US$600 million for GvHD.

As with a slew of other biotechs, Cynata outlined its progress at this week’s Euroz Hartleys Healthcare Forum in Perth.

Originally published as Health Check: Ahead of Chemist Warehouse merger, brokers ring bell on ‘overvalued’ Sigma shares