Primo Water Corp T.PRMW

Alternate Symbol(s): PRMW

Consumer Defensive Beverages - Soft Drinks

Primo Water Corporation is a pure-play water solutions provider that operates under a recurring revenue model in the large format water category. This business strategy is referred to as razor-razorblade. Its Razorblade offering includes Water Direct, Water Exchange, and Water Refill. Through its Water Direct business, it delivers sustainable hydration solutions direct to customers, whether at home or to businesses. Through its Water Exchange business, customers visit retail locations and purchase a pre-filled bottle of water. Once consumed, empty bottles are exchanged at its recycling center displays, which provide a ticket that offers a discount towards the purchase of a new bottle. Water Exchange is offered in over 17,500 retail locations. Through its Water Refill business, customers refill empty bottles at nearly 23,500 self-service drinking water stations. It offers water filtration units across North America. Its water solutions offer access to purified, spring and mineral water.

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Primo Water Corp

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Post by retiredcfon May 07, 2021 4:22pm

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Post# 33154689

TD Upgrade

Primo Water Corporation

(PRMW-N, PRMW-T) US$16.63 | $20.12

Primo Over Delivers Again, Sticking With a BUY Event

Following Q1/22 results and conference call, we have modestly increased our EBITDA estimates through our forecast period by ~1.5% to reflect the beat and slightly easier comparables on the back of the strengthening post-COVID-19 economy. We are also introducing our 2023 EBITDA estimate of $436mm.
We have increased our target price to US$21.00 (from US$19.00) due to a combination of slightly higher estimates and rolling valuation out another quarter.

Impact: NEUTRAL

This was another strong beat in a tough market, driven by strong revenue growth in the residential businesses, incremental synergies from the legacy Primo acquisition, and strong cost control. We believe that there are several drivers that should generate consistent mid-single-digit sales growth and high-single-to-low- double-digit earnings growth. Specifically:

Residential-focused revenue mix: We expect a meaningful boost in residential/ retail water growth due to a more permanent shift in "working from home" conditions. Following the recent transactions, residential/retail revenue now accounts for 60% of consolidated revenue, and should mitigate the commercial pressure. The lowest hanging fruit lies in Europe where Primo is accelerating the Water Refill, Water Exchange, and Water Dispenser businesses to diversify the customer base.
Commercial recovery: While there will be a more permanent shift in working from home arrangements PRMW should benefit from easier y/y comparables as it begins to recapture some of the lost commercial volumes.
Contactless delivery: Primo has quickly expanded water delivery though its e- commerce partner to several states, and we believe that it is well-positioned to expand throughout North America as consumer demand increases.
Cost control: Primo over-delivered again on the margin front through ongoing cost containment. We believe that management will continue to be cost conscious, but with an eye on starting to reinvest in growth as the economy reopens.

TD Investment Conclusion

All-in, we believe that strong execution, deleveraging, synergy capture, and evidence of economic green-shoots will push PRMW's valuation up towards its peers.