time for this baby to move, page-27

I really cannot understand why Sigma is valued so much higher that API. The market cap of Sigma at $789.7m is more than six times that of API at $119.6m yet API has larger revenues than Sigma ($3.5 billion versus $2.9 billion in their last respective annual reports).

Sigma’s net assets at $676.8m are less than its market cap whereas API’s net assets of $546.3m are more than four and a half times its market cap.

API was recently thrown out of the ASX 300 and that has had a cascading effect as index funds flogged the shares to buy the stocks replacing them in the index. Sigma on the other hand is an ASX 200 stock and therefore gets much more fund manager attention.

SIP is having a better run than API in recent times but the average annual earnings of SIP since 2003 according to COMSEC are 5.5 cents a share. Over the same period API had average annual earnings of 8.6 cents a share. Yet SIP sells for 67 cents and API sells for 24 cents. If API can get back to just its average earnings then it is selling on a PE of under 3. SIP on the other hand is selling on a PE of 12.6 based on its average earnings during that time. Why is SIP selling at four times the PE of API in terms of historic earnings?

The SIP share price has risen 95 percent over the last six months whereas API is down 15 percent. It is hard to believe they are in the same industry.

The net result in my view is that API is a much better buy right now than SIP.

API has had a torrid time thanks to Queensland floods, Pfizer’s decision to go it alone and sack the wholesalers and the pharmaceutical benefits reforms but API has been around a long time; it has a solid balance sheet and it is cash flow positive. The average age of Australians is increasing as the baby boomers head into the sixties and plan to hang around so much longer than their parents. This is a growth industry and API seems like a gift right now particularly when compared with SIP.

GPASAS