A recently-listed public Canadian company has developed a strategy to cash in on increased use of medications by an aging population.
Value of drug prescriptions in Canada was at $22.7 billion in 2016 and is expected to hit $30 billion by 2024, with continuing increases after that from an aging population.
Neighbourly Pharmacies Inc. is in the acquisition, business buying pharmacies that are integral to the community in small markets. Thirty-nine were added last year with one new location.
About 6,500 of the country’s 11,000 pharmacies are independently owned. Neighbourly thinks 3,600 are potential acquisition targets.
Of the 140 pharmacies in the Neighbourly stable, 57 per cent are 3,000 to 6,000 square feet in size with the rest around 2,000 square feet.
What Neighbourly brings to the new acquisitions consists of new services, new products and pricing and technology to reduce costs.
Started in 2006, the company went public this spring with a $175 million sale of shares in the initial public offering followed by an $18 million offering.
The company had assets of $504 million at June 30 and long-term debt of $48.8 million, a quite reasonable level. Cash on hand amounted to $112 million — enough to buy lots of pharmacies.
Benchmark sales growth measure of sales increases in stores owned for one year was an astounding 8.2 per cent. By comparison, Shoppers Drug Mart reported 4.3 per cent same store sales increase in 2020.
About 70 per cent of Neighbourly revenues comes from filling prescriptions.
Almost two-thirds of the 33.4 million shares outstanding are held by insiders, leaving a limited float for investors. Average trading volume is low rarely exceeding 2,000 shares a day with less than 1,000 shares traded on many days. Investors should be wary of sudden price jumps on low volume.
Share price, currently around $30, has fluctuated from $20 to $31.99. Original buyers of the initial public offering have a 50 per cent paper gain.
With a $1 billion market value, Neighbourly shares trade just over twice annual revenues, another reasonable level.
This is one stock worth putting in your watch list.
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Ron Walter can be reached at email@example.com
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.