Neighborly Pharmacy becomes Achat: iA Capital Markets

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Chelsea Stellick of iA Capital Markets remains firmly behind community pharmacy company Neighbor pharmacy (Neighborly Pharmacy Stock Quote, Chart, News, Analysts, Financials TSX: NBLY) in its latest analysis on Wednesday, raising its rating from “Hold” to “Buy” and raising its target price to $ 31.00 / share from 28 .00 $ / share previously.

Neighbourly Pharmacy, headquartered in Toronto, has the largest network of community pharmacies in Canada, built on an acquisition model to consolidate independent pharmacies and aiming to acquire, integrate and operate stores by leveraging the scale and best practices across all stores while minimizing disruption to acquired businesses.

Stellick’s report comes after Neighborly announced its financial results for the first quarter of fiscal 2022, with quarterly revenue slightly below expectations as Neighborly said $ 85.3 million against the consensus of $ 89 million , although it still represents a 55% increase year over year. . Adjusted EBITDA saw a similar peak, increasing 54% to $ 10 million from a consensus estimate of $ 11 million and iA Capital Markets estimate of $ 13 million. Stellick notes that Neighborly has suffered some impacts related to the pandemic, but believes it will be the last full quarter to show short-term distortion due to the pandemic.

“We are very pleased with Neighbourly’s first quarter results, which provide further proof of the success of our acquisition strategy,” said Chris Gardner, CEO of Neighbourly, in the company’s August 3 press release. “The locations added to our network over the past four quarters have accounted for approximately 83% of our quarterly revenue increase. The acquisition and integration of community pharmacies is the foundation of our company’s long-term growth strategy. Across Canada, there are currently over 3,600 independent pharmacies that meet our acquisition criteria, and we look forward to working with their owners as we continue to expand our network over the coming year.

“Neighbourly’s first quarter results also reflect the first steps towards normalizing our business following the impact of COVID-19,” Gardner added. “Our pharmacy teams have administered more than 70,000 COVID-19 vaccinations to date, including more than 44,000 in the first trimester alone. I am exceptionally proud of the role these teams are playing in Canada’s recovery from the pandemic. Their commitment gives me great confidence in the future of Neighborly.

Although net new prescriptions are down nearly 15% from pre-pandemic levels, business volumes have normalized for NBLY and same-store sales have grown at a steady pace. by 8.2% due to a favorable base year comparison due to COVID-19, which negatively impacted sales in the same period last year.

Neighbourly has been busy on the acquisitions front, adding 40 new locations in the past four quarters, accounting for 83% of quarterly year-over-year revenue growth thanks to prescription sales and other products. Stellick suggests Neighbourly looks strong from a liquidity standpoint, with $ 112 million in cash and access to $ 150 million in credit, providing significant leverage to execute its M&A strategy through 2023. .

Neighborly aims to add 35 stores per year, although Stellick is a little more conservative in his estimate.

“We anticipate that 25 locations will be added this year and that acquisitions will increase each year to 35 stores per year in F2025. With the increase in inbound activity after the IPO, NBLY could indeed exceed this projection and maintain historic levels, ”Stellick wrote.

Stellick’s revised view also includes some slightly revised financial projections. It still projects $ 306.5 million in revenue for 2021, but Stellick has raised its expectations for 2022 to $ 432.7 million, from its previous projection of $ 430 million. The new forecast would represent a 41.2% year-over-year increase over the 2021 projection.

Stellick also slightly revised its adjusted EBITDA estimate for 2022 to $ 63.4 million, an 8% increase from its original forecast of $ 57 million and a projected increase of 80.6% d ‘year after year.

Key trading multiples show some fluctuation in Stellick’s analysis, with his EV / income estimate climbing to 3.9x for 2021 from the 1.0x reported in 2019 and 2020, then decreasing to 2.7x in 2022. Meanwhile, multiple adjusted EV / EBITDA forecasts show a more consistent decline, from 82.3x in 2019 to 56.1x in 2020 and then to 33.8x in 2021 before another expected decline to 18.7x in 2022.

Looking to the future, Stellick sees the continued execution by the company of its strong acquisition strategy as a key component of its future growth.

“NBLY has a niche competitive position and will continue to evolve by expanding its store portfolio and creating economies of scale,” she said. “Upcoming mergers and acquisitions will guide the outlook and we are monitoring the gradual improvement in EBITDA margins over time as the integration playbook is repeated with each acquisition. “

It will be important to monitor how well the company executes its M&A strategy going forward, Stellick said.

“Given Neighbourly’s deployment strategy and a proven track record (to date) of acquisitions fueling growth, we have developed a basic financial profile that relies on the company continuing to consistently meet its business goals. ‘acquisition. Given the multitude of independent pharmacies and their significant market share (around 60%), we expect Neighbourly not to run short of potential acquisition targets; as such, we see execution as the key, ”she said.

At the time of going to press, Neighborly Pharmacy was trading at $ 29.79 / share on the Toronto Stock Exchange, up 42 cents from its close on Thursday. Neighbourly has grown significantly over the year to date, up 32.46% from its Jan. 1 rate of $ 22.49 / share. At time of going to press, Stellick’s $ 31.00 goal represented a one-year expected return of 10.3 percent

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