Neighbourly Pharmacy Inc T.NBLY

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[incomedreamer11]

Neighbourly Pharmacy Inc. (NBLY-T) C$23.21 Q1/23

First Look: Temporarily Higher Costs Pressured Margin Derek J. Lessard Cheryl Zhang, (Associate)

Event Neighbourly reported Q1/23 adj. EBITDA of $11.3mm vs. $10.1mm LY (+11% y/ y), below consensus of $12.3mm (range: $11.7mm to $14.0mm).

Impact: SLIGHTLY NEGATIVE

While the Q1/23 results came in slightly softer than expected, we expect the pressures, namely the lag in in-person physician visit recovery and the pharmacist shortages, to diminish over the next 12 months. Specifically, the reduced funding for virtual care in Ontario starting in September, as well as the accelerated immigration programs (which should bring in international pharmacy graduates), should encourage in-person clinical activities and increase the supply of pharmacists, in our view. We believe the initial highlights of the quarter include
  Revenue: Up 34% y/y to $114.4mm (cons: $115.8mm), driven by the addition of 43 pharmacies y/y (accounts for 96% of the growth) and SSSG of 1.8%. Samestore prescription growth was only 0.4%, impacted by a higher proportion of clinical locations and the continued softness in in-person physician visits and new prescriptions.
Adj. EBITDA: Margin decreased ~200bps y/y, mostly due to:
1) ~70bps decline in gross margin tied to higher proportion of clinical locations (40% vs. 32% LY), which typically dispense a higher mix of lower percentage-margin branded drugs;
2) incremental labour cost as a result of longer-than-usual time to fill pharmacist vacancies;
3) impact of new scripts on revenue.

We expect margins to materially improve starting in Q2, driven by the Rubicon acquisition and better mix. The conference call is at 8:30 am and we expect the focus to centre on the cost environment and any developments on pharmacist vacancies.

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