- Key Carex brand drives revenue fall
- Gross margin improved despite cost pressures
PZ Cussons’ (PZC) half-year results were hit by the reduced need for fervent COVID-related cleanliness. The manufacturer and distributor of personal healthcare and consumer goods, which benefitted from surging sales of its Carex handwash brand at more uncertain points of the pandemic, announced a 16 per cent fall in hygiene revenue. Despite this, the company enjoyed increased profits and kept the half-year dividend steady.
Carex remains the market leader in the UK’s hand hygiene space, and hygiene is still by far the PZ's greatest revenue generator. But Carex’s denuded sales had a significant impact on the business, as it drove a 19 per cent decline in Europe and Americas revenue. This reshaped the geographic performance picture, as Africa returned to its position as the group’s biggest top line contributor.
African performance was the success story of the half year. Revenues were up by over a fifth to £102mn, with the segment taking over a third of total group sales. Double-digit revenue growth was enjoyed across key brands such as Morning Fresh washing up liquid.
While customers were less interested in slapping on the handwash, they didn’t shy back from spending on the group’s other offerings. Beauty revenues were up by a fifth, as the St. Tropez premium tanning brand and Fudge hair products enjoyed growth, while an 11 per cent growth in electricals revenues was sparked by price increases. Baby product sales were a disappointment, however, down by 4 per cent to £50mn.
Management was keen to flag the impact of inflationary pressures despite lower costs driving a higher pre-tax profit. Selling and distribution costs and cost of sales were down by £4mn and £19mn respectively in the half. Jonathan Myers, chief executive, said that “commodity and freight costs show no sign of abating in the near term and we continue to anticipate cost pressures into FY23”. In this context, a 40 basis points improvement in the gross margin to 38.7 per cent was a positive result.
Consensus forecasts suggest EPS of 13.8p and 14.5p for the 2022 and 2023 financial years. The shares are trading at a 12-month forward PE ratio of 13 times, which is below the five-year average.
While Carex’ sales tumble clearly won’t cheer investors, a fall had to happen at some point due to a change in pandemic outlook. Revenue performance improved in the second quarter, and African growth is encouraging. Management expects adjusted profit before tax for the full financial year to fall in line with consensus forecasts. We still think PZ Cussons represents a speculative buy.
Last IC View: Buy, 221p, 22 Sep 2021
|PZ CUSSONS (PZC)|
|ORD PRICE:||195p||MARKET VALUE:||£ 836mn|
|TOUCH:||195-196p||12-MONTH HIGH:||280p||LOW: 184p|
|DIVIDEND YIELD:||3.1%||PE RATIO:||22|
|NET ASSET VALUE:||92p*||NET DEBT:||5%|
|Half-year to 30 Nov||Turnover (£mn)||Pre-tax profit (£mn)||Earnings per share (p)||Dividend per share (p)|
|*Includes intangible assets of £294mn, or 69p a share|