Company Reports

Sigma's revenue grew by 16% to AUD 10.9 billion in fiscal 2026, on a pro-forma basis. The core Chemist Warehouse network in Australia benefited from strong demand for weight loss drugs. Underlying EBIT increased by 21%, but shares fell 8% as the growth was still less than the market expected.

Sigma’s strategy is to gain share by rolling out franchise stores. Along with franchise fees, franchisees secure a route for distribution volumes. Sigma’s key brands are Chemist Warehouse, Amcal and Discount Drug Stores.

Sigma's shares fell by over 5% following confirmation that it is in discussions to acquire the UK's largest pharmacy operator, Boots, from US Private Equity Group Sycamore for a rumored price tag of GBP 7.5 billion, or AUD 14.3 billion.

We transfer coverage of Sigma Healthcare, Australia’s largest retail pharmacy franchisor, most notably owning the Chemist Warehouse brand. It also operates overseas in New Zealand, Ireland, China, and Dubai, has a growing private-label range, and offers third-party logistics services.

Sigma’s strategy is to gain share by rolling out franchise stores. Along with franchise fees, franchisees secure a route for distribution volumes. Sigma’s key brands are Chemist Warehouse, Amcal and Discount Drug Stores.

Sigma's interim 2026 underlying EBIT rose 19% on strong 15% sales growth and supply chain consolidation. Chemist Warehouse Australia added 13 new stores with another nine planned in the second half, while same-store sales grew 15% on higher weight-loss drug sales.

Ebos shares fell 30% in 2025, with its Chemist Warehouse contract taken by Sigma in July 2024 and facing much stronger competition following Sigma's acquisition of Chemist Warehouse in February 2025. In October, Ebos reaffirmed fiscal 2026 EBITDA guidance, implying roughly 5% organic growth.

Sigma’s strategy is to gain share by rolling out franchise stores. Along with franchise fees, franchisees secure a route for distribution volumes. Sigma’s key brands are Chemist Warehouse, Amcal and Discount Drug Stores.

Sigma’s strategy is to gain share by rolling out franchise stores. Along with franchise fees, franchisees secure a route for distribution volumes. Sigma’s key brands are Chemist Warehouse, Amcal and Discount Drug Stores.

Sigma Healthcare's underlying fiscal 2025 EBIT grew 49% on successful integration of Chemist Warehouse. The firm raised its annual cost savings targets by AUD 40 million, with plans to close three distribution centers. It is also exiting physical retail operations in China due to market complexity.

Sigma’s strategy is to gain share by rolling out franchise stores. Along with franchise fees, franchisees secure a route for distribution volumes. Sigma’s key brands are Chemist Warehouse, Amcal and Discount Drug Stores.

We have reviewed the competitive positioning of Sigma Healthcare after merging with Chemist Warehouse. It has catapulted into the S&P/ASX 20, dominates the market by pharmacy retail spending, and is a growing headache for competitors.

No-moat Sigma Healthcare’s fiscal 2025 underlying EBIT was up a strong 117% to AUD 68 million, but was close to our expectations and around the midpoint of prior company guidance. Revenue increased more than we expected, growing 46% to AUD 4.8 billion on higher volumes of prescription medicines supplied to Chemist Warehouse, or CW. However, second-half gross margins compressed more than we expected, down roughly 110 basis points sequentially to 5.4%. This was mainly due to the sales mix shifting to lower-margin prescription medicine, and the net impact on gross profit was largely neutral. We keep our AUD 1.65 per share fair value estimate and our long-term estimates are largely unchanged. We intend to adjust our forecasts to align with the firm’s new financial year ending in June shortly.

There is no escaping Pharmaceutical Benefits Scheme, or PBS, price reform, which is challenging industry profitability and leading to subpar returns for Sigma. We estimate about 50% of Sigma’s revenue is reliant on PBS. Although government PBS spending is notionally uncapped, the overall quantum typically barely grows due to ongoing PBS price reform and the Australian government having significant negotiating power in allowing new drugs onto the PBS schedule. As such, we forecast typical industry revenue growth in line with population growth of 1.5%.

Sigma’s new Chemist Warehouse supply contract is progressing smoother than expected. Management lifted Sigma’s underlying EBIT guidance range for fiscal 2025 by 22% at the midpoint to AUD 64 million to AUD 70 million. This was largely due to minimal teething issues when commencing the new CW supply contract on July 1, 2024, and reflective of Sigma’s ability to efficiently absorb volume growth. We already assumed logistics and distribution of the new contract would eventually run at full efficiency, albeit on a longer timeline of roughly a year. Our long-term estimates are largely unchanged. We forecast Sigma’s legacy business excluding CW to grow underlying EBIT by a four-year compound annual growth rate of 18% to AUD 127 million by fiscal 2029.

There is no escaping Pharmaceutical Benefits Scheme, or PBS, price reform, which is challenging industry profitability and leading to subpar returns for Sigma. We estimate about 50% of Sigma’s revenue is reliant on PBS. Although government PBS spending is notionally uncapped, the overall quantum typically barely grows due to ongoing PBS price reform and the Australian government having significant negotiating power in allowing new drugs onto the PBS schedule. As such, we forecast typical industry revenue growth in line with population growth of 1.5%.

We raise our fair value estimate for no-moat Sigma by 6% to AUD 1.65, given a strong Chemist Warehouse trading update. First-half fiscal 2025 CW EBIT grew by 35% to AUD 438 million on 10% like-for-like sales growth and EBIT margins expanding by 400 basis points to 22%. The group also added 21 stores in the half to have a total of 658 stores.

The Australian Competition and Consumer Commission has approved Sigma Healthcare’s proposed acquisition of Chemist Warehouse, or CW, largely based on Sigma’s proposed remedies. Despite the ACCC delaying its decision twice, opposition from pharmacists and major bodies including the Pharmacy Guild and Ebos, and admitting the acquisition is a major structural change for the pharmacy market, it concluded the proposed remedies would assuage the initial competition concerns raised in June 2024.

There is no escaping Pharmaceutical Benefits Scheme, or PBS, price reform, which is challenging industry profitability and leading to subpar returns for Sigma. We estimate about 50% of Sigma’s revenue is reliant on PBS. Although government PBS spending is notionally uncapped, the overall quantum typically barely grows due to ongoing PBS price reform and the Australian government having significant negotiating power in allowing new drugs onto the PBS schedule. As such, we forecast typical industry revenue growth in line with population growth of 1.5%.

Shares in no-moat Sigma Healthcare are materially overvalued as we think there is a significant risk of regulatory resistance and do not yet factor in Sigma’s potential acquisition of Chemist Warehouse in our base case. In contrast to the market’s reaction, we don’t think Sigma’s proposed remedies materially derisk regulatory clearance, given it doesn’t address other major competition concerns from the Australian Competition and Consumer Commission that we think stem from the significant structural advantage in vertical integration and market share that it would gain. In addition, our preliminary estimate of forecast fiscal 2025 earnings for the merged group implies Sigma’s shares are currently trading at a forward P/E ratio of 33 times. This suggests minimal upside if the deal goes through as proposed, outweighed by the significant downside risk if Sigma cannot overcome all ACCC concerns. The rejection of the deal, as we expect, is a potential catalyst for the share price closing the gap to our fair value estimate of AUD 0.78 per share.