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Primo Water Corp PRMW

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Strong Execution Against Strategic Priorities Continues for Primo in Q1; Shares Fairly Valued

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.

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Company Profile

Business Description

Primo Water, formerly Cott, is a pure-play water provider that is the product of the March 2020 acquisition of the legacy Primo business by Cott. The firm’s water solutions ecosystem is anchored by an assortment of water dispensers and its water direct business. In the latter, it receives recurring revenue for delivering large-format (3- and 5-gallon) water bottles to residential and commercial customers for use in the dispensers. Supplementary offerings include water exchange, where consumers can exchange or purchase prefilled containers at retail, and water refill, where consumers have access to the network of self-service refill units that Primo manages. Most sales are generated in North America, with the remainder primarily in Europe and Israel.

4221 West Boy Scout Boulevard, Suite 400
Tampa, FL, 33607, Canada
T +1 813 313-1732
Sector Consumer Defensive
Industry Beverages - Non-Alcoholic
Most Recent Earnings Mar 31, 2021
Fiscal Year End Jan 1, 2022
Stock Type
Employees 8,880

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