Chemist Warehouse deal could lift Sigma share price

David Di Pilla’s Sigma play may not just involve capitalising on the group’s property portfolio, but also boosting the company’s share price as well.

The Sigma play by former UBS investment banker-turned real estate company boss David Di Pilla may not just involve capitalising on the group’s property portfolio.

It may also involve boosting the company’s share price as well.

One possibility being floated is that Mr Di Pilla leverages his relationships with the management at Chemist Warehouse to help the company win back a valuable contract that could see the stock re-rate and become substantially more valuable.

Mr Di Pilla is the managing director of HMC Capital, formerly known as Home Consortium, that has amassed a stake of more than 19 per cent in Sigma.

He formed the company after buying the sites of the former Masters home improvement chain that were owned by Woolworths.

At that time, the sites were purchased for more than a collective $700m with a consortium that included his former UBS Australia boss Matthew Grounds, Spotlight Group and Chemist Warehouse.

Sigma is an ASX-listed pharmaceutical wholesaler and distributor and also has a network of independent and franchised pharmacies and healthcare providers across Australia.

Its brands include Amcal, Guardian, Discount Drug Stores and PharmaSave.

Listed on Sigma’s balance sheet is $200m worth of property, plant and equipment, and the obvious play for Mr Di Pilla is an acquisition of Sigma’s real estate in a sale-and-leaseback deal where HMC Capital can lease the properties back to the company.

But winning back the Chemist Warehouse contract could add a substantial amount to Sigma’s share price, possibly as much as 40 per cent, and Mr Di Pilla knows the key players there well.

Sigma shares suffered severely in 2018, falling 40 per cent, after the loss to rival Ebos Group of its contract to supply 400 Chemist Warehouse and My Chemist stores.

The expiry of Sigma’s Chemist Warehouse contract freed up $300m of cash for the business but created a hole in its earnings.

One scenario that also been discussed is that Sigma’s operating business is sold in the future to Chemist Warehouse, and HMC Capital takes Sigma’s property, although some believe this is less likely.

Chemist Warehouse would be more interested in a contract tie up with Sigma than ownership.

The discussion around Sigma came as the company’s managing director Vikesh Ramsunder on Thursday delivered results, turning around from a $7.2m loss to report a $1.8m annual net profit.

It also slashed its debt level by 55 per cent to $67m and lifted its net revenue by 6.2 per cent to $3.6bn.

Mr Ramsunder said with brand consolidation and business simplification, while there would be some level of disruption in the year ahead, it would be in a much better place to implement its strategy, win back customers and deliver an improved financial performance.

Sigma also recently announced the sale of certain hospital operations and assets of its subsidiary Central Healthcare Services to Clifford Hallam Healthcare, reaping $44m.

Sigma said on Thursday it believed earnings before interest and tax would be between $26m and $31m for 2024.

Shares in the company closed up 0.5c to 62c, with its market value at $652m.