Primo Water Corporation

Primo Water Corporation (TSX: PRMW) is a leading pure-play water solutions provider in North America, Europe and Israel. The company’s water solutions ecosystem is anchored by an assortment of water dispensers and its water direct business, helping them generate approximately USD 2.1 billion in annual revenue.

Key highlights

• Upcoming quarter & Full Year 2021 Outlook: The management expects to clock the revenue in the range of USD 490-510 million with the adjusted EBITDA in a range of USD 90-95 million for Q2 2021. While for FY 2021, they expect total organic revenue growth of 5%, which would deliver an Adjusted EBITDA in a range of USD 380-390 million.

Source: Company

• Acquired Earth2O: Recently, the company’s subsidiary Primo Water North America ("PWNA"), acquired substantially all of the assets of The Sweetwater Company, Inc. dba Earth2O, a bottled water company based in Oregon and known for its commitment to sustainable water, environmental responsibility and natural, pure spring water from Oregon's Cascade Range. This acquisition helped the company in increasing its footprint in Pacific Northwest region as it added approximately 9,000 customers.

• Higher Adjusted EBITDA: Adjusted EBITDA grew 8% to USD 76 million in the reporting quarter, compared to USD 70 million in the previous corresponding period. Increased demand for products and services from residential consumers, continuing operational leverage improvement, the heritage Primo acquisition, and synergy realization all contributed to the rise. The Adjusted EBITDA margin grew by 110 basis points to 15.9%.
  

• Rising cash from operations along with free cash flows: In Q1 2021, the company generated higher cash provided by operating activities from continuing operations of USD 28.7 million compared to USD 4.7 million in the previous corresponding period, while an adjusted free cash flow stood at USD 8 million, against a negative adjusted free cash flow of USD 5 million in the prior year.

• Event update: The Company will release its second quarter ended July 3, 2021, financial results before the markets open on August 5, 2021.

Financial overview of Q1 2021 (In millions of USD)

Source: Company

• In Q1 2021, the company posted revenue of USD 478.4 million, against USD 474.2 million in the previous corresponding period. The increase was driven mainly by the legacy Primo acquisition along with increased demand for products and services from residential customers.
• Gross profit for the reported period decreased 3% to USD 264.5 million, against USD 273.3 million in pcp. Gross margin stood at 55.3% compared to 57.6%, primarily due to lower volume driving higher per unit cost of sales.
• Operating income stood at USD 13.1 million in Q1 2021, compared to a loss of USD 4.0 million in pcp, on the back of lower SG&A expenses and lower acquisition and integration cost.
• Net loss from continuing operations minimized to USD 10.2 million compared to a loss of USD 27.4 million in pcp.

Risks associated with investments

Continued economic uncertainty can adversely affect the group’s customer’s financial condition, resulting in an inability to pay for its services or products and reduced or cancelled orders of the group’s services or products. Such adverse changes could lead to a slide in the company’s top line and bottom line.  

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

Despite a difficult operating environment and increased lockdown measures in many of the geographies the company serves, it generated good topline, adjusted EBITDA, and adjusted free cash flow growth. Furthermore, the group is concentrating on growing its client base in the residential to small and medium-sized business sectors. It plans to use its eCommerce capability to extend its customer base and maximize penetration. Furthermore, along the positive momentum heading into the second quarter the management increased the full year Adjusted EBITDA outlook. Therefore, based on the rationales discussed above and valuation, we recommend a “Hold” rating on the stock at the closing price of CAD 21.09 on July 21, 2021.

One-Year Technical Price Chart (as on July 21, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.