Neighbourly Pharmacy Inc.
(NBLY-T) C$22.91
Worst of the Pharmacist Shortage Now Behind It Event
Following Q2/F23 results and fine-tuning our model, there are no material changes in our revenue and EBITDA forecasts. However, with almost a full-quarter contribution from Rubicon, we have lowered our depreciation forecasts tied to those assets. We have also lowered our interest expense forecasts, given lower debt levels following the equity issuance. Overall, our F2023/2024/2025 EPS estimates increase by 40% (including the Q2/F23 beat)/14%/12%.
Impact: NEUTRAL
Neighbourly has faced some difficult challenges and although some remain, we argue that the headwinds are beginning to abate.
Pharmacist shortage has passed the worst. NBLY is making significant progress in filling pharmacist vacancies (down 25%), helped by aggressive recruitment activity. Management expects to reach equilibrium by summer 2023, driven by new pharmacist graduates (domestic and international).
In-person visits recovering meaningfully, highlighted by an immediate 200bps improvement in Rx volumes in Ontario, given the recent reduction in reimbursement for virtual doctor appointments. We expect other provinces to follow.
Challenges also creating M&A opportunities. The M&A pipeline is robust, with fewer independent pharmacies looking to buy additional locations, while others are expecting less attractive economics tied to higher interest rates.
Boosting pharmacist productivity. Ontario/British Columbia central fill locations will be operational in Q3/F23, bringing the total to five. They are expected to help ease labour pressure in the short term, and ultimately free up capacity for expanding scope of practice.
Expanding scope of practice trends should generate incremental revenue.
Since October 14, B.C. pharmacists have been able to administer more vaccines and renew prescriptions for up to a two-year period for people whose family doctors have retired or left their practices, while the Ontario government is giving pharmacists additional prescription authorizations starting in January 2023.
TD Investment Conclusion
Despite yesterday's strong share-price reaction, we still see room for a more meaningful recovery as we move closer to the end of the interest-rate-tightening cycle. Although easing pressure is encouraging, low investor appetite around small- cap roll-up stories could mean that the shares trade in a tight range in the near term.