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Ebos shares hit record, ASX-listed Sigma plunges as Chemist Warehouse contract changes hands

Monday 2nd July 2018

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Ebos Group rose as much as 8.6 percent, touching a record, after the Kiwi pharmaceutical and animal health products maker poached a distribution deal with Australia's Chemist Warehouse which could bring in A$1 billion of revenue in the first year.

The shares rose as high as $19.50, and were recently up 7.2 percent to $19.25, valuing the company at $2.94 billion. In contrast, ASX-listed Sigma Healthcare, which lost the contract, sank 41 percent to 47.5 Australian cents, valuing that firm at A$503.3 million.

Christchurch-based Ebos today said it won the tender to be the exclusive third-party distributor of pharmaceutical products to over 400 Chemist Warehouse and My Chemist stores in Australia, in what could run for up to eight years and is estimated to generate approximately A$1 billion in revenue in the first year of the agreement. Separately, Sigma said it would risk shareholder funds without an adequate return and that losing the contact will mean changes to its operations and cost base.

Mark Lister, head of private wealth research at Craigs Investment Partners, said Ebos has been a quiet achiever over the past 10-to-15 years and that the 2013 Symbion acquisition gave it the scale to pull off a contract of this size.

"It's hard to know at this point what the level of earnings accretion would be - it could be somewhere around the high single digits: 8 or 9 percent in terms of bottom line profit," Lister said. That would "tie in with what the share price is doing."

Ebos has traditionally grown through mergers and acquisitions, the two largest being the Symbion deal and the 2011 purchase of Masterpet. More recently, it bought New Zealand vitamin and herbal tea maker Red Seal, pharmaceuticals firm Zest, Australian pharmacy retailer Good Price Pharmacy Warehouse, the Black Hawk Premium Pet Care pet food business and merged its Australian Chemmart pharmacy chain with rival Terry White Group.

In May last year, it bought Australia’s largest provider of outsourced pharmacy services to hospitals, HPS, for A$154 million and acquired a 14.1 percent shareholding in MedAdvisor Ltd, Australia’s leading digital medication management company, last October.

“It’s a great endorsement of Ebos’s wholesale pharmacy business, and reflects the high level of expertise and service standards that we offer the industry more broadly," said chief executive John Cullity. "Continuing to grow our healthcare business remains a high priority for the group and partnering with Chemist Warehouse Group will be a natural progression of that. We are confident that Ebos will generate an acceptable return on capital from this new business."

The stock is rated an average 'hold' based on five analyst recommendations compiled by Reuters, with a median target price of $18.45 before today's deal was announced.


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