Primo Water (TSX:PMRW): Liquidity will increase in 2022 thanks to recurring revenues
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Investors are addicted to energy and basic materials stocks in 2022, but who wouldn’t be, since the two sectors are currently the best performers? Additionally, commodity stocks are in the spotlight, as many people see them as portfolio diversifiers in times of high inflation.
However, for risk-averse investors, the choices are not limited to oil producers or metal miners. Water, a vital nutrient, is now marketed as a commodity. Primo Water (TSX:PRMW) (NYSE:PRMW) is not a famous name, but it is a staple consumer stock.
pure play water company
Water investments are available on US and Canadian exchanges, but they are rare. Primo Water is the only pure water company on the TSX, and the $2.96 billion business has a unique and sustainable portfolio of drinking water solutions.
Cott Corporation was the original entity, until the rebranding and corporate name change in 2020. Primo Water serves customers in North America, Israel and Europe. Its water solutions expand consumer access to purified, spring and mineral water. In addition to promoting a healthy and sustainable lifestyle, Primo aims to reduce plastic waste and pollution.
Recurring revenue model
Primo Water operates and prides itself on its recurring razor and razor blade revenue model. The Shaver revenue model refers to the industry leading line of stylish and innovative water dispensers. Products are sold through major retailers and online. Below the razor blade model are the Water Direct, Water Exchange and Water Refill business segments.
The Water Direct business is crucial, delivering sustainable hydration solutions across a 22-country footprint directly to customers’ doorsteps, homes or commercial businesses. Primo’s water exchange and water refill business offers pre-filled purified water in multi-gallon containers.
In North America, there are more than 13,000 locations in addition to self-service drinking water charging stations at 22,000 locations.
According to management, the transition to a pure water company is only the first step in Primo’s journey to improving value. It is confident that the business strategy will deliver measurable long-term success in support of its goal and vision to become the leading brand in the pure water category.
2021 Financial Highlights
Tom Harrington, CEO of Primo Water, said: “2021 has been a success for our pure water company. We achieved record levels of revenue and adjusted EBITDA thanks to strong customer demand, particularly in our Water Direct/Exchange business. In fiscal 2021 (fiscal year ended January 1, 2022), net revenue increased 6% to $2.07 billion from fiscal 2020.
Management reported a net loss of US$3 million, a 98% year-over-year improvement from a net loss of US$157 in the prior year. For fiscal 2022, Primo expects revenue growth of 9-10%. The adjusted guidance includes the planned exit from the single-use bottled water business in North America.
Harrington added, “We remain confident in our long-term guidance of high single-digit organic revenue growth and annualized adjusted EBITDA approaching $525 million for 2024.”
Primo Water is not a typical core holding or anchor in a dividend portfolio, although it is an ideal backup. At $18.27 per share, the dividend offer is modest but safe at 1.90%. If you want exposure to one of the world’s most essential resources, buy this defensive stock.