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 

• Event Update: The Company will release its fourth quarter ended January 2, 2021 and fiscal year 2020 financial results on Thursday, 25^th February 2021, before the markets open.

• The management’s outlook on Q4 2020: The management expects to book the revenue in Q4 2020 in the range of USD 470-500 million with an adjusted EBITDA in the range of USD 85-95 million.

• Developing an integrated digital strategy to drive growth:The company is making use of the common platform to launch webshops across multiple markets, strategically entering and disrupting markets organically, also pursuing plug and play leading eCommerce capabilities to increase penetration and grow customer base. We believe this integrated digital strategy would allow them to improve consumer experience and long-term growth.

• Springwater source certified from AWS program:Recently, the company announced that its North America’s Wekiva Spring site in Florida had achieved certification based on an independent, in-depth assessment. Certification of the Wekiva Spring site demonstrates that Primo Water North America has successfully completed each of the AWS Standard steps. Their next step is completing the certification process for its Georgia and Arkansas spring water sources this year.

Financial overview of Q3 2020 (in millions of U.S. dollars)

Source: Company

• In Q3 2020 net revenue increased by USD 93.1 million, or 6.9%, to USD 517.5 million, primarily due to the addition of revenues from the Legacy Primo business and pricing initiatives, partially offset by a decline in water and office coffee services consumption and volumes due to the impact of COVID-19.
• Due to the above-discussed reasons, the gross profit increased to USD 304.1 million in Q3 2020, compared to USD 286.3 million in the previous corresponding period.
• Operating income stood at USD 41.3 million in the reported quarter, compared to USD 38.4 million in Q3 2019, partially offset by slightly higher SG&A expenses.
• The company posted healthy growth in net income to USD 22 million, compared to USD 10.1 million in the previous corresponding period, driven by the higher operating income and lower income tax expense. 

Risks associated with investment

Continued economic uncertainty can adversely affect the group’s customers' 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): Price to Earnings 

(Note: All forecasted figures and peers have been taken from Thomson Reuters) 

Stock recommendation

The company would capitalize on trends, styles and consumers preferences, such as water enhancements, countertop and under-the-sink filtration, and IoT capabilities. The company would focus on leveraging its current relationships with factories to grow its customer base. Furthermore, the company is pursuing a plug and play leading eCommerce capabilities to increase penetration and grow customer base. We believe this integrated digital strategy would allow them to improve the consumer experience and long-term growth. Based on the rationales discussed above and valuation, we have given a “Hold” rating at the closing price of CAD 20.13 on February 1, 2021. We have considered Chemed Corp, Terminix Global Holdings Inc, UniFirst Corp, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

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