Primo Water Corp T.PRMW

RBC

[retiredcf]

Current and upside scenario targets are US$19 and US$23. GLTA

Primo Water Corp

Forcing Investors to Acknowledge Organic Execution; Reiterate Outperform

Our view: PRMW delivered solid top and bottom line results, which was expected after management reaffirmed 1Q targets on 4/21. This makes 5 consecutive quarters of top-line beats and 8 straight for EBITDA. We believe this is a funciton of better execution and less volatility post the S&D divestiture. With the Primo acquisition and S&D divestiture now in the base, we believe the story will now be easier to follow and investors will be forced to appreciate the solid organic execution. For FY'21 we are maintaining our +6% revenue estimate (guidance does not incl. tuck-ins) and raising our EBITDA estimate from $384 to $388M. We rate PRMW Outperform.

Key points:

Positives: 1) Back to growth on the top-line - Total Company net sales increased +0.9% to $478.4M (in-line w/ RBCe/cons). Global revenue from residential and at-home consumers increased +25% while the commercial biz fell 23%. Encouragingly, April is off to a strong start with NA water direct/ exchange +13% (residential +4%/commercial +2%), Europe +30% and Israel +60%. Keep in mind April 2020 was heavily impacted by the pandemic. 2) Continued strong cost controls - EBITDA of $76.2M (RBCe $75.2M/cons. $74M) was up +8.5% Y/Y despite revenue growing less than a pt. 3) Synergy capture ahead of schedule - PRMW delivered $7M in synergies in 1Q, bringing the cumulative total to $25M to date (this initially was the target through the end of 2021. $35M total through 2022 reaffirmed. 4) More evidence of post-COVID stickiness - Management shared that 60% of 2020 NA dispenser sales were from new customers and retention is quite strong after 6 months in the system. Also of note, Israel (~5% of sales) experienced +60% growth in April despite being reopened. 5) Management is building credibility - Recent results confirm that management's decision to become a pure play water company has given the team a lot more control over their fate. This quarter marks 5 straight top-line beats and 8 straight EBITDA beats vs. Visible Alpha cons.

Negatives: Not much to poke at. If anything we'll be keeping cost on our radar. As a reminder, PRMW's exposure to commodities is relatively small, but they are affected by labor inflation and higher 3rd party freight costs. Management said they have taken price increases that have allowed them to stay ahead of rising labor costs and noted that higher freight costs are already baked into guidance.

Guidance: For 2Q, management is calling for net sales in the range of $490-510M (cons. $513.4M) and EBITDA in the range of $90-95M (cons. $93.5M). Based on the current environment, we expect delivery near the top-end of these ranges. For the full year, the team reaffirmed their +5% net sales target (cons. +5.9%) and raised their EBITDA expectation from $370-380M to $380-390M (cons. $378.8M).

Adjustments to estimates: For FY'21 we are maintaining our +6% revenue estimate (guidance does not incl. tuck-ins) and raising our EBITDA estimate from $384M to $388M. PT unchanged at US$19.