Our worries that PZ Cussons would be hit by instability in northern Nigeria have proved justified, with the consumer products manufacturer warning that full-year profits would now be "some way below expectations". With little indication that the troubles are easing, and with the shares still commanding a significant premium to the market, we're reiterating our sell advice.
Cussons' problems in Nigeria have been compounded by the removal of a long-standing fuel subsidy. The decision had already led to a week-long national strike, but the negative impact on consumer spending and disruption to transportation has proved more pronounced than expected. While PZ argues that the removal of the fuel subsidy will have a long-term benefit to Nigeria – one of the world's fastest growing economies – the short-term impact of recent events is significant. Broker Panmure Gordon has reduced its 2012 pre-tax profit forecast by 12.6 per cent to £89m, and shaved 8.8 per cent off its 2013 forecast, which now stands at £109m.
Trading elsewhere has been in line with expectations despite high promotional activity in the UK and Australia. But raw material costs are clearly still biting, prompting the group to undertake an extensive shake up of its supply chain and manufacturing base, with factories in Ghana and Australia earmarked for closure. The restructuring will result in exceptional cash costs of £19m and £20m of non-cash write downs and generate annual savings of around £8m.
