Ebos Group: Warehouse clearance

About the author:

Author name:

By Scott Power

Job title:

Senior Analyst

Date posted:

08 June 2023, 6:30 AM

Sectors Covered:

Healthcare, Life Sciences

• Ebos Group (ASX:EBO) has announced it has lost the contract to supply wholesale PBS medicines to Chemist Warehouse (CW) from July 2024.
• Across town, Sigma Health (SIG.ASX) announced they have won the contract from July 2024 in addition to continuing its supply for CW’s FMCG component (front-of-house).
• Whilst the loss of this contract is a clear hit to EBO’s top line (~16% in FY25e), it would appear the loss was less to do with execution and more to do with the aggressive terms to secure the contract, and likely significantly lower than what EBO would have been prepared to compete with, in our view.
• The news came as a negative surprise to both investors and management, particularly the timing of the news, which meant details were limited. We expect further news around costs as new strategies are developed over the coming months.
• We have downgraded our EPS forecast by ~16% in FY25. As a result, our valuation has decreased to (login to view). While this is a short-term setback, EBO’s track-record speaks for itself, and we remain comfortable in management’s ability to navigate the changing customer mix. Add maintained.

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