Australia | Jun 19 2025
New research on Sigma Healthcare highlights management's conservative cost synergy target, as well as potential market share gains and operating leverage.
-Jarden's research highlights Sigma Healthcare's strong growth potential
-Higher-than-expected cost synergies complement the potential from offshore expansion
-Product expansion via Ultra Beauty, Optical, Media, and Health Services
-FY25 results in August should provide a clearer picture
By Mark Woodruff
Following the union with Chemist Warehouse, pharmacy retail and wholesale giant Sigma Healthcare ((SIG)) appears positioned for sustained growth, driven by ongoing market share gains, operating leverage, and the realisation of substantial cost synergies.
This is the view of broker Jarden, which initiated research coverage earlier this month, highlighting the company's enhanced scale and earnings potential post-transaction.
Just as important: the broker's growth projections exclude any substantial contribution from international markets.
Jarden assigns just 24c per share in value to offshore operations, despite early signs of traction and a total addressable market estimated at over $60bn, five times the size of the Australian market.
Announced in December 2023 and completed in February 2025, the merger between Sigma Healthcare and Chemist Warehouse was effectively a reverse takeover, with Sigma acquiring Chemist Warehouse for -$700m in cash and issuing approximately 9.91bn new shares.
As part of the transaction, Chemist Warehouse co-founders Jack Gance, Sam Gance, and Mario Verrocchi were appointed to the Sigma board, while CEO Vikesh Ramsunder remained at the helm of the newly combined entity.
Shares in the merged company began trading on the ASX on February 13, and have fluctuated between around $2.70 and $3.34 since, closing yesterday at $3.24.
Initial trading was buoyed by merger optimism and inflows from passive investors, driving an immediate price rally, while subsequent profit-taking by early stakeholders was largely absorbed by ongoing institutional demand.
Sigma operates through two core segments: Chemist Warehouse, Australia's largest retail pharmacy franchisor, which supplies wholesale front-of-store consumer goods and markets a portfolio of owned, private label, and exclusive brands; and Wholesale, which delivers full-line wholesale and distribution services across prescription medicines, over-the-counter products, and front-of-store ranges to more than 3,500 pharmacies nationwide.
Growth potential
By FY30, management intends to expand internationally to 220 stores from 83 today, (a conservative target in Jarden's view), with the number in Australia expected to increase to around 690 from 586.
Morgan Stanley explains Sigma, via the Chemist Warehouse banner, has exposure to international markets including New Zealand, Ireland, China, and Dubai.
In these regions, operations are structured through partnerships in which local entities partly own or operate the networks, in accordance with jurisdiction-specific ownership regulations.
Apart from being a leading retailer in Australia with an emerging global presence, the business is complemented by wholesale distribution (the old Sigma) and health and digital services. The broker sees an opportunity to better leverage data and expand into adjacencies such as Ultra Beauty, Optical, and Media, along with health services.
Ultra Beauty is Sigma's premium beauty retail concept, initially launched in 2018 as a shop-in-shop experience within Chemist Warehouse stores, focusing on luxury fragrances, cosmetics, and skincare products. In 2025, management expanded the concept with Amcal Ultra stores.
Optical refers to Optometrist Warehouse, Chemist Warehouse's dedicated optometry retail brand, now part of Sigma Healthcare following the 2025 merger. The brand aims to disrupt the optometry market by offering affordable eye care and optical products.
Media activities focus on brand marketing, digital presence, and content strategy to support Sigma's retail and pharmacy brands, including Amcal, Chemist Warehouse, Ultra Beauty, and Optometrist Warehouse.
Health services is the underappreciated opportunity, suggests Jarden, via creating a broader health ecosystem through online health services, partnerships with insurers, loyalty, and creating a digital currency akin to that from South African-founded Discovery Limited.
The key earnings driver, highlights Jarden's research, is the Chemist Warehouse earnings margin, though this can be difficult to decipher as the margin is split via media, goods, fees, own brand, rebates, services, property management and franchisee agreements.
Highlighting leverage associated with Chemist Warehouse, the broker explains every 100bps move in FY32 margin has a 12cps valuation impact.
Cost synergies
Management anticipates achieving annual cost synergies of approximately $60m within five years, primarily through the consolidation of logistics and distribution networks.
In initiating coverage last month, Morgan Stanley described the $60m target as conservative, highlighting potential upside both in the scale and timing of synergy realisation.
This broker believes completion of the combined group's strategic plan, expected to be unveiled alongside the FY25 results in August, could prompt an upward revision of the cost synergy estimate.
Reporting timelines so far and upcoming
On March 20, Sigma released its FY25 results for the 12 months ending 31 January 2025, representing its final standalone performance prior to the Chemist Warehouse merger completed in February.
Citi noted earnings (EBIT) of $68m landed within the February guidance range of $64-70m, supported by the commencement of the new Chemist Warehouse supply agreement on July 1, 2024, alongside continued wholesale growth through the Amcal and Discount Drug Stores networks.
While no dividend was declared for FY25, the board expressed confidence in the outlook for the merged entity, flagging a future dividend payout ratio of 50-70% of net profit.
Later, on May 6 Sigma issued an operational update covering Chemist Warehouse's FY25 performance for the nine months to March 31, offering investors a snapshot of the newly merged entity's key metrics.
Normalised earnings growth was broadly in line with Chemist Warehouse Group's 36% increase for the first half, noted Citi.
The integration was progressing well, according to company management, with ongoing progress towards the targeted $60m in annual cost synergies.
The next financial report (for the 12 months to June 30) will fully consolidate Chemist Warehouse's results with Sigma's, giving a clearer picture of the merged business's health and performance.
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