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Sigma shareholders need good lie down


Jacob Saulwick
July 4, 2007
Bitter pill … analysts said Sigma boss Elmo De Alwis had been too optimistic with his previous profit forecast.

Bitter pill … analysts said Sigma boss Elmo De Alwis had been too optimistic with his previous profit forecast.

SHAREHOLDERS in drug manufacturer and distributor Sigma Pharmaceuticals could be forgiven for popping a restorative pill yesterday after the shares plummeted almost 18 per cent on the back of a profit downgrade.

Sigma, which had the worst performing share price of any of the ASX's top 100 companies last year, had forecast 10 to 15 per cent growth on last financial year's $101 million net profit.

But in a statement yesterday Sigma wiped out the forecast growth, indicating that the coming year's profit would remain at about $101 million.

It attributed the profit downgrade to diluted access to a government funding scheme and heightened competition in the generic pharmaceutical market.

"They have worn out their credibility with some sections of the market," Shaw Stockbroking analyst Brent Mitchell said.

Sigma managing director Elmo de Alwis said Sigma's competitor, global freight company DHL, should not be able to access the Federal Government's community service obligation fund, which is worth $12 million a month.

The CSO funds pharmacy distributors to ensure all pharmacies across the nation are adequately stocked. Mr de Alwis said he had received legal advice that DHL should not be allowed access to the scheme because it only distributed for the generic drug manufacturer Alphapharm.

If DHL was taken off the scheme it would boost the $4 million monthly payment Sigma received from the pool. But analysts said Mr de Alwis had been overly optimistic in including a revision to the CSO scheme in Sigma's original profit forecast.

Increased discounting by generic drugs companies and the expiry of Sigma's sole licence to produce some generic products would also hurt the company's future earnings, Sigma said.

Sigma announced an on-market share buyback of up to 9.9 per cent of the group's ordinary shares, which is due to start in about two weeks. The company has money to spare after having bids spurned for competitors Australian Pharmaceutical Industries and Symbion Health.

But yesterday's share price fall did not deter Mr de Alwis from talking up further acquisitions. "They are not off the agenda," he said. "If a sensible acquisition at a justifiable price came up we would be keen to do it. We would look at pharmaceutical brands - particularly if we could manufacture them." Sigma shares lost 38c to finish at $1.75, after hitting a low of $1.70.

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