SIGSigma changed its code from SIP to SIG this year. for previous comments read here,
click here to viewThis mesage was released to the market this week, at least it explained the recent drop in price - insider trading from those who knew about the dispute.
"Sigma Healthcare Limited (Sigma) has been in ongoing discussions in relation to the operation of certain aspects of the current Supply Agreement with the My Chemist/Chemist Warehouse Group (MC/CW). As part of this, offers of mediation and binding arbitration were also proposed but were rejected by MC/CW.
As a satisfactory resolution has not been reached, Sigma has now decided to commence legal proceedings against MC/CW.
The proposed proceedings relate to MC/CW’s stated intention to acquire certain products from an alternate CSO Wholesaler. Sigma maintains that under the existing agreement MC/CW is not entitled to acquire products from another CSO Wholesaler. Remedies to be sought by Sigma include declarations and injunctions for specific performance of the agreement.
If MC/CW acts in accordance with their stated intention, the impact on Sigma’s EBIT is expected to be approximately $5m - $10m per annum. While Sigma remains confident of its position, this action, combined with a continuation of the subdued start to the financial year, may mean that current year underlying EBIT could be up to 5% below FY2016/17 (subject to the outcome of the proposed proceedings). Ongoing legal costs will also impact earnings.
Sigma values the relationship with MC/CW and will continue to provide operational support to MC/CW in accordance with the terms of the current Supply Agreement which runs to June 2019.
As this matter is to be the subject of legal proceedings, no further comments will be made."The reality is the situation is much worse than SIG make it sound, CW is their biggest client by a large margin - providing nearly 40% of the revenue stream. Win lose or draw this court case, its hard to see the relationship surviving it, the contract ends in 2019 and assuming CW take all its business elsewhere the impact of a 40% cut in revenue on top of the collateral damage would take SIG back to the 20-30c range IMO.
So the likely pattern seems to me to be a steady stream of bad news culminating in the end of the relationship in 2 years, and no doubt a steadily falling SP to match!
SIG has been an awesome holding for me, bought in October 2013 for 57c and in the ensuing 3 ½ years we have earned nearly 40% in dividends and seen the SP hit $1.33 earlier this year. Even if I sell now we will still have made a great return on capital invested.
I am going to do some more reflection before making a final decision, but my instinct is to sell at this point.
update at 9/17Well I didnt sell in May, but looking at the numbers again I think its time to find a new home for the capital and I will look to sell down.
Update 27/9Sold out of SIG, missed out on a much bigger capital gain if I had sold earlier when it outran the IV, salutory lesson! We held for 4 yrs, made a 42.6% capital gain and 38.5% in dividends, so a $10k investment delivered a $8102 or 81% return over the 4 yrs, or 16% annual return compounding. A very satisfactory outcome!
