Sigma Pharmaceuticals (SIP) Update

Submitted by Craig Strzelecki on 22 March, 2007 - 17:04

Sigma Pharmaceutical (SIP) have an upgraded broker call of Outperform and a price target of $2.71 per share from stock analyst Macquarie Research Equities. The upgrade follows an improvement in several key drivers. The 'Embrace' strategy has seen a very impressive take-up, with about 800 pharmacies (or nearly 16% of the industry) now signed up. But the analyst understands that the vast majority were existing customers and that the benefit of the rapid conversion to 'Embrace' will not begin to come through until FY08. Sigma Pharmaceuticals has benefited from the API market share losses in mid-CY06 but not to the same extent as the hospital distribution business gained by SYB. With the PBS growing at 0.77% in 2H07 (including a very weak 4Q), the stock analyst's 5.1% growth forecast for 2H07 wholesaling revenue implies that the API-driven gains earlier in the period were sustained by some share gains from the 'Embrace' strategy (and to a lesser extent the retail strategy) toward the end of the period. Breadth of product offering and depth of pharmacist relationships reduces the effects of PBS changes. Along with building customer loyalty, gaining higher margin private label/OTC sales and supporting wholesaling market share, the 'Embrace’ strategy also allows SIP to cross-discount its non-pharmaceutical products against its pharmaceuticals, which will not be able to receive the same level of discounting as in the past due to tightening of PBS regulations. Generic market share has been growing according to IMS data (which is admittedly limited in Generics), it suggests that SIP has been growing market share principally at the expense of Alphapharm. The recent exit of Ranbaxy from the bidding for Alphapharm's owner, Merck Generics, reduces the risk that Alphapharm may become more competitive under a new owner. The analyst has upgraded their SIP recommendation based on sustained weakness relative to the market and their unchanged share price target. The stock analyst sees value emerging from the 'Embrace' strategy as the new regulatory framework forces PBS price disclosure, and from the increasing urgency of further consolidation in the sector.

Sigma Pharmaceuticals Limited is listed on the Australian Stock Exchange (ASX) under stock code SIP. You can view their investor website here. SIP was listed on the ASX on 30 October, 2002. Dr John Wilcox Stocker is the Chairman of Sigma Pharmaceuticals and the Managing Director is Elmo Ranjan De Alwis. The company is involved in the operation of a pharmaceutical business encompassing the manufacturing, development and distribution of own branded and contract OTC (over the counter), prescription and generic pharmaceutical products for the Australian and overseas markets. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade SIP. Check your charts and good luck with your share trading!

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