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PZ Cussons feels the squeeze

The pressure on discretionary spending in oil-producing nations is an issue for the significantly exposed consumer goods group
January 26, 2016

The low oil price is believed to be a boon for consumer-focused companies, but if a sizeable chunk of your customers come from a commodity-producing nation it can hurt more than it helps. This is the problem faced by consumer goods manufacturer PZ Cussons (PZC), which saw its shares drop by as much as a tenth on these half-year numbers. Africa counts for nearly a quarter of the group's profits, the vast majority of which comes from Nigeria. The country has come under pressure from the steep drop in oil prices, leading to successive devaluations of the currency which have hit selling prices for consumer goods.

IC TIP: Sell at 243p

Management says the performance of its Nigeria-based home and personal care business has been "robust", but acknowledged that revenue and profit in its higher-ticket electricals division in the country were "significantly lower as a result of the squeeze on disposable incomes". This meant operating profit in Africa dropped 13.1 per cent to £10.6m.

While its Asia business also suffered similar pressures, Europe was a bright spot for the group in its most profitable division. Operating profit in the region rose 4.7 per cent on a reported basis to £26.8m, due in part to the strong innovations in brands such as Carex and Original Source, which have played well in the UK. Management is understandably pleased the European business is growing strongly as it helps "offset the challenges in emerging markets and the impacts of currency weakness".

Good news also comes from the group's recent acquisitions. Its Nutricima milk business, which it now wholly owns following last year's buyout of its joint-venture partner, helped performance in Africa. In Asia, a brand relaunch of food company Rafferty's Garden saw it grow its regional distribution, while five:am's newer product categories, such as granola, proved popular.

Analysts at JPMorgan Cazenove cut their forecasts for the group in December. The broker now expects adjusted pre-tax profit of £102m and EPS of 17.4p in the 2016 financial year, compared with £109m and 17.9p in FY2015.

 

PZ CUSSONS (PZC)
ORD PRICE:243.3pMARKET VALUE:£1bn
TOUCH:242.4p-243.4p12-MONTH HIGH:377pLOW: 242p
DIVIDEND YIELD:3.3%PE RATIO:19
NET ASSET VALUE:108p*NET DEBT:38%

Half-yearto 30 NovTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201438739.76.532.61
201538640.06.752.61
% change-+1+3-

Ex-div: 18 Feb

Payment: 7 Apr

*Includes intangible assets of £356m, or 83p a share