sigma/ chemist warehouse reverse takeover

Hey Morrie,

It’s hard to know what the right price is for the combined group, but we think you’re right in saying that it’s a very high quality retailer and the combined group should continue to perform well in the prevailing high cost of living environment. They continue to grow in Australia and there are prospects for further international expansion, implying more growth potential than other large cap peers in the retail sector, hence, they should trade on a higher multiple.

We have not done the numbers on this, however using Citi’s assessment, they are pricing the group on an EV/EBIT multiple of 36x which is very high (Wesfarners trades on 22x, JB Hi-Fi 14x for context), and they get a valuation of $2.50, which is around about the current price i.e. it looks fully valued here, but so do many stocks!