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SIGMA PHARMACEUTICALS (SIP) $1.745
3 Jul 2007
BLUE CHIP INDUSTRIAL
BUY
INFORMATION CORRECT AT
STOCK CATEGORY
OUR VIEW
Investors seem to have finally given up on Sigma
Pharmaceuticals following today’s profit downgrade.
The company announced that net profit for the half-year
to 31 July 2007 will fall about 25%, followed by a fairly
strong recovery in the second half, with the result for
the full year ended 31 January 2008 expected to be flat
on last year’s $104.6m.
Both divisions of the company have been affected.
Margins in the pharmacy wholesaling division
(‘Healthcare’) are under pressure following the
introduction of the Community Service Obligation in
July 2006 (we’ll explain this in our next review). Slightly
more worryingly, sales and margins in the company’s
generic drug manufacturing division (‘Pharmaceuticals’)
have been affected by intensifying competition.
If we assume the forecast is correct, then Sigma
looks very good value on a pre-goodwill amortisation
PER of 14.5. Even if we assume the second half doesn’t
show the expected recovery, though, the current price
is still not expensive for a well-managed company in
a growth industry. True, that industry is changing
rapidly but, as the strongest and most efficient company
in it, Sigma is well placed to weather the storm. We’re
working on a more detailed review but, with the share
price down 24% since 18 Jun 07 (Long Term Buy—$2.31),
we’re upgrading to BUY.
Disclosure: Staff members own shares in Sigma Pharmaceuticals,
but they don’t include the author, James Greenhalgh.