Bottom line: The Street is never happy to see an unexpected CEO departure from a relatively recent IPO, particularly when it comes only 5 months after the announcement of a CFO succession. Importantly, however, we do not believe Mr. Gardner stepping away from the CEO role for personal reasons reflects any underlying untoward issues for investors. Moreover, Mr. Bourdo's deep experience, operational focus, and M&A experience, combined with the deep bench strength at NBLY should enable the Company to shore up its operational expertise while executing on its M&A growth strategy.
High conviction on M&A, key driver of growth and operating leverage. The fundamental growth opportunity at NBLY remains unchanged: with an addressable pipeline of 3.5k potential acquisition targets, and an uptick in succession planning conversations as pandemic and now triple virus surge fatigue increases, we are highly confident in NBLY ability to continue with the average pace of 40 stores/year, with upside should larger networks come to market. For the rest of F23, NBLY is on track to close roughly 10 acquisitions in addition to +4 in Q1 and +100 from Rubicon early Q2. Our forecasts indicate NBLY should be able to comfortably fund its growth from internally generated cashflow, resulting in modest deleveraging, while simultaneously delivering on operating leverage.
“Show-me” valuation presents opportunity for LT investors. With the stock down ~40% from its highs, NBLY is trading close to IPO valuation (12.3x C23E EBITDA). Strong argument for multiple expansion, in our view, underpinned by highly favourable M&A backdrop, demographic trends, ongoing expansion of pharmacy services, and the positive effect of scaling and valuation arbitrage on shareholder returns.