Sigma Pharmaceuticals (SIP) Update

Submitted by Share Trading on 26 March, 2008 - 13:01

Sigma Pharmaceuticals (SIP) has a share price target of $1.45 from Australian shares analyst Macquarie Research Equities.

Sigma Pharmaceuticals (SIP) – Solid Result

The pharmaceutical and healthcare industries have outperformed the market so far this year with good results being reporting by the major companies in the sector. Sigma Pharmaceuticals Limited (SIP) released its FY08 result showing a strong NPAT of $90.2 Million which was slightly below expectations. In today’s note, Macquarie Research Equities (MRE) reviews SIPs result and investigates the outlook for the healthcare company for the next 12 months.

SIP reported solid overall sales figures of 2.92 billion which represented growth of 9.9%. When this is broken down, the health care side of the business has been the strong performer, growing by 13.6% and making up $2.35 billion of total sales. The remaining revenue is from pharmaceutical sales which have failed to report any growth, with sales of $615 million, down 2.1%. MRE highlight that interest costs have been higher than expected and explain the reduced expected NPAT. This is relatively normal considering the current market conditions in the debt market. SIP has been able to reduce cost of goods sold (COGS) by renegotiating licensing agreements for generic products and by reducing production costs.

On the back of this relatively strong report, MRE has upgraded its recommendation for SIP highlighting its value down at its current price. There are concerns around the higher interest costs but there are expectations that this can be offset by improving margins. MRE has a price target of $1.45, this represents upside of over 14 percent from its current price.