Sigma Healthcare’s Share Price Down despite $500 Million Debt Agreement

Sigma Healthcare Ltd’s [ASX:SIG] share price is trading 1.74% lower at 57 cents today. It seems investors aren’t sold on their story just yet, as shares plummeted at the market’s open, only to pick back up and drop again.

The share price fell despite exciting news of its $500 million receivables Purchase agreement with Westpac Banking Corporation Ltd [ASX:WBC].

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Sigma Healthcare’s share price stands to gain from agreement

The biggest gain for shareholders of Sigma is the added funding options that will continue in its investment program, as well as capitalising on future growth opportunities, as reported in an ASX release this morning.

The three-year re-financing agreement has been separated into three parts, as follows:

  • Cash advance tranche of $115 million — expires 30 November 2019
  • Overdraft facility of $135 million — expires 31 May 2020
  • Cash advance tranche of $250 million — expires 30 November 2021

After Sigma’s exist from it’s My Chemist/Chemist Warehouse contract, the company has expected a return of working capital. It also provides Sigma additional funding and flexibility to meet key infrastructure investment in distribution centres and information systems. On top of that, the facility will also meet working capital requirements.

Sigma’s chief financial officer, Iona MacPherson, spoke about the facility:

This new facility provides Sigma with a strong functioning platform for the next stage of the company’s corporate transformation. We’d like to thank Westpac for their continuing support and demonstration of confidence in Sigma.’

But the market showed that despite support from Westpac investors remaining unconvinced, shares of both Sigma and Westpac were trading lower today.

Sigma Healthcare’s share price 2019 outlook

2019 looks jam-packed for Sigma Healthcare, but really, it’s just a matter of whether it can gain enough trust form investors.

There was a recent announcement of a proposed merger with Australian Pharmaceutical Industries Ltd [ASX:API]. Sigma Healthcare is being proposed a 69.3% premium on the Sigma share price. It’s something API chairman Mark Smith believes will benefit everyone involved, shareholders, pharmacists and customers alike.

Our proposal is attractive for Sigma shareholders, in that it provides upfront cash payment and the ability to share in the upside from scrip in the merged company,’ Smith said.

The proposal is also subject to conditions including clearance from ACCC. But if the merger goes ahead, API shareholders would own around 63% of the combined entity, leaving Sigma shareholders the remaining 37%.

Which for Sigma investors, doesn’t seem all that appealing. Although Sigma Healthcare is still in talks with API, as the company already holds a 12.95% in Sigma shares.

Unfortunately, investors will just have to wait it out to see. But the good news is there’s always more to come.


Ryan Clarkson-Ledward,
For Money Morning

PS: In this just released report, Matt Hibbard shows you his top five dividend picks for 2019. Click here to claim your free copy today.

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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