Analyst Note
| Nicholas Johnson, CFA |Heading into no-moat Primo’s first-quarter earnings, with its financials set to be free from the merger machinations that muddied results in 2020 (when Cott acquired Primo), we think investors were looking for visibility into the timing of a fledgling recovery in the commercial business and margin dynamics a year since the merger closed. There were signs of improvement in the businesses most beleaguered by the pandemic lockdowns, and the firm ultimately executed well, delivering marginal top- and bottom-line beats relative to FactSet consensus. Still, uncertainty abounds regarding the firm’s prospects, particularly in Europe, and while management has managed costs well so far, this may become more difficult as the team balances margins with the pursuit of strategic objectives. We plan to increase our $16.30 (CAD 20.50) fair value estimate slightly as a result of time value, but while the shares have been under some pressure lately, we still don’t see a sufficiently compelling margin of safety for prospective investors at current levels.