The Sigma Healthcare Ltd (ASX: SIG) share price is on form on Monday.
In morning trade, the pharmacy chain operator and distributor’s shares are surging 6% higher to 72 cents.
Why is the Sigma share price storming higher?
Investors have been buying Sigma’s shares this morning following the release of a very positive trading update.
According to the release, Sigma’s performance in the second half has been very strong. As a result, it is expecting its underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to grow strongly in FY 2021.
Sigma is expecting to report underlying EBITDA of $80 million for the 12 months ended 31 January 2021. This will be an increase of over 35% on the prior corresponding period.
Sigma’s Managing Director and CEO, Mark Hooper, commented: “The business continued to perform strongly through the second half, with sustained momentum underpinning our FY21 guidance and confidence in FY22.”
Mr Hooper is confident the growth will continue and expects to achieve its FY 2023 targets.
“Our ability to leverage investments already made will also see Underlying Return on Invested Capital return to double digits in FY21, and we continue to expect to achieve our previously stated target of $100 million Underlying EBITDA by FY23,” he added.
Debt facility
This morning the company also revealed that it has signed an agreement with Westpac Banking Corp (ASX: WBC) to extend its existing $250 million Receivables Purchase Agreement for a further three-year term. The facility is now set to mature in November 2023.
Sigma’s CFO, Jackie Pearson, commented: “This facility meets our ongoing funding requirements including the final stages of our transformational investment program and mid-month peak in receivables. We thank Westpac for their ongoing support.”
The company’s net debt was around $50 million at 31 January and is expected to peak in the second half of FY 2022. This is in line with the completion of the capital investment cycle. After which, it is expected to reduce from that point as a result of strong operating cash generation.
Mr Hooper concluded: “The next 12-months will see Sigma advance from a position of strength, with our entire infrastructure upgraded, a more efficient and scalable business model, and a strong balance sheet. This leaves the business in a prime position to accelerate growth.”
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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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