Chemist Warehouse is now ASX listed! Here are 5 critical things all investors need to know!

Chemist Warehouse is now ASX listed – 14 months since the plan to list was first unveiled. Australia’s largest pharmacy chain had long been mulled as an IPO candidate. But – with IPO conditions less than ideal – it chose to list via a reverse takeover of Sigma Healthcare (ASX:SIG). The irony is that despite the deal resulting in a new company being 85% owned by Chemist Warehouse, it is technically a case of Sigma acquiring Chemist Warehouse. And now we have a new $30bn company listed, putting it easily in the top 20 valuable companies on the bourse.

5 things investors need to know, given Chemist Warehouse is now ASX listed!

It is majority-owned by its own people

The company’s founders and franchisees have significant skin in the game. The company is 49% owned by its founders – Jack and Sam Gance, plus Mario Verrocchi and they will be subject to escrow…for 6 months. The Gances are descendants of post-World War II migrants, initially from Poland but who fled to Russia, then to Paris and Australia. The Gances started in 1972 with a single pharmacy in Melbourne. This followed periods of working in their parents’ milk barsVerrocci came onboard in 1980 as an intern and eventually became their business partner.

Their franchisees have ownership too – 104 franchisees will have stakes between $5-25m and a handful with stakes over $100m. As Dominos can tell you, keeping franchisees happy can be a challenge, but its seems Chemist Warehouse believes having skin in the game can be one way to do this. Granted, some of them may have been among the $400m worth of shares that changed hands to fundies and retail investors when the stock debuted yesterday.

David Di Pilla’s HMC Capital was a substantial shareholder in Sigma with nearly 20% and now owns just under 3% of the combined group.

Investors won’t need to wait long to see financial results

Sigma is expected to release its full year audited results in mid-March. Sigma upgraded its EBIT guidance to $64-70m, up from $50-60m, although it has warned that its profit will be impacted by non-recurring costs related to the merger (I.e. bankers costs and legal fees).

Chemist Warehouse has released preliminary unaudited results for the first half of FY25, recording a total of $5.15bn in sales, up 13%. Although the majority of this ($4.51bn) was from Australia, international growth was stronger, with sales up 18%. It recorded a 22.3% EBIT margin and it closed the period with 658 network stores.

The company wants to expand overseas

Chemist Warehouse remains a predominantly Australian company, but has overseas expansion ambitions. It opened its first New Zealand store in 2017, and set up shop in Ireland in 2020. As of October 2024, it had 53 stores in New Zealand, 11 in Ireland and 12 in China, plus it opened its first store in Dubai – at the Al Ghurair Centre.

One of the key conditions for the ACCC to approve the final deal was for the regulator to be satisfied that it would not lessen competition. After all, Sigma was a player in its own right as it owned brands including Amcal +, Discount Drug Stores, PharmaSave and Guardian. The ACCC mandates some pharmacies leave the network to maintain a degree of competition. But perhaps gaining pharmacies overseas can make up for the lost stores here.

It has a unique business model compared to other pharmacies

It is more like a discounted retailer as its founder intended it. I makes 67% of sales from ‘front of house’ products (think items like vitamins, shampoo and toothpaste that you could easily get from Coles and Woolworths). The company also generates 20% of its revenue from its ‘retail media’ operations. This includes its in-house ad agency, in-store displays, digital screens, and its sponsored products.

It plans to be a dividend payer

In its prospectus, it was stated that Chemist Warehouse intended to target a dividend payout ratio of 50-70% of its statutory profit post-income tax expense. With increased one-off expenses due to the deal, don’t expect it to be that high in the coming 12 months. Of course, as with all companies, it solely up to management’s discretion.

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