Underlying earnings (EBIT) were ahead of guidance in FY19, although UBS notes earnings quality was affected by restructuring costs and weak cash conversion. The company has indicated FY20 underlying operating earnings (EBITDA) will be $55-60m.
UBS makes material upgrades to FY21-22 estimates, reflecting the incorporation of Project Pivot. Project Pivot is the company’s $100m cost reduction program, of which around $60m is expected to come from the transition of Chemist Warehouse and the remaining $40m from operating efficiencies.
The company is a quality operator but UBS does not believe the stock warrants a premium to market. Rating is downgraded to Sell from Neutral and the target reduced to $0.45 from $0.58.
Sector: Health Care Equipment & Services.
Target price is $0.45.Current Price is $0.54. Difference: ($0.09) – (brackets indicate current price is over target). If SIG meets the UBS target it will return approximately -20% (excluding dividends, fees and charges – negative figures indicate an expected loss).
