First result since IPO Neighbourly Pharmacy Inc.’s (NBLY-T) in-line fourth-quarter results and subsequent management comments reinforce Desjardins Securities analyst Chris Li’s view that it is “a compelling growth story driven by acquisitions in a highly fragmented industry as well as aging demographics.”
Before the bell on Thursday, the Toronto-based company release its first earnings report as a publicly traded company, featuring year-over-year revenue and adjusted EBITDA growth of 58 per cent and 115 per cent, respectively.
“Modest same-store sales (up 0.4 per cent) and prescription growth (down 0.75 per cent) were impacted by panic buying in March 2020,” said Mr. Glen. “Trends should normalize in 2Q FY22.”
“The attention created by the recent IPO has increased inbound and outbound calls with potential sellers. NBLY has acquired 70 pharmacies over the past two years and expects the pace to be maintained. There is potential upside driven by aging pharmacy owners and succession challenges, limited competition and NBLY’s strong record of being an acquirer of choice. The pandemic has placed considerable stress on pharmacy owners, and the pace of deal activity will likely pick up. The balance sheet is in excellent shape, with PF leverage of 1.3 times, well below NBLY’s comfort zone of 2.5 times and max of 3.5 times. We believe NBLY’s premium valuation serves as a strong M&A currency and increases its flexibility for larger deals”
Citing concerns about that valuation, the analyst maintained a “hold” recommendation with a $27.50 target, falling short of the $28.70 average.
“Since its IPO on May 25, NBLY shares are up 55 per cent vs 3.3 per cent for the S&P/TSX and trade at 18.3 times forward EBITDA vs a 15-times average for other Canadian consumer growth companies,” he noted.