Sigma Healthcare shares are surging. What does Macquarie say they’re worth?

Shares in Chemist Warehouse owner Sigma Healthcare Ltd (ASX: SIG) are trading strongly higher on Monday after the company announced it had pulled out of talks with UK-based The Boots Group.

Short-lived takeover conversation

Sigma last week confirmed that it was in preliminary discussions with The Boots Group after the news broke in the Australian Financial Review.

But the company on Monday said these discussions had drawn to a close, while the company kept the door open to other international opportunities.

The company said:

International growth is one of Sigma’s four key strategic growth pillars and the Company remains committed to driving growth in its core offshore markets, while assessing and seeding new markets. This includes the UK where Sigma recently announced a Memorandum of Understanding (MoU) with Greenlight Healthcare. Sigma engaged in the Boots sale process given the potentially unique opportunity it presented to accelerate its UK expansion through the market-leading Boots brand and large footprint. However, following its preliminary review the Company has concluded that such an acquisition would not currently meet its strategic and capital investment objectives.

Sigma said it had many opportunities for growth and was confident in its current strategy.

It said the company would continue to assess acquisition opportunities, “in all markets that will deliver on our strategy and long-term sustainable returns for Sigma shareholders”.

Brokers say core business is strong

Macquarie issued a new research note on Sigma when the news of the Boots talks broke last week.

The analyst team said Boots had a potential enterprise value of US$10 billion, with about 1800 stores and 20% of the UK market share.

The Macquarie team said any deal would have necessitated a “sizeable” equity raise from Sigma.

They said the weaker Sigma share price when the deal was announced was, “evident of caution on a significant overseas transaction in an unproven market, with weak track record of UK expansion by Australian companies”.

But Macquarie said Sigma’s domestic earnings trajectory appeared to remain intact, driven by health and beauty trends and operating leverage.

Macquarie has a share price target of $3.50 on Sigma shares, while a Jarden report from early May has a $3.60 share price target.

Sigma shares are 7% higher on Monday at $2.82.

Jarden said in early May that Sigma had a long runway for growth via new and expanded stores, “with success in Ireland and NZ, and now the UK entry”, referring to a memorandum of understanding with GreenLight Healthcare to launch Chemist Warehouse in the UK market.

Sigma is valued at $30.48 billion.

The post Sigma Healthcare shares are surging. What does Macquarie say they’re worth? appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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 Scott Phillips.