PZ Cussons shares dive after dividend cut

A 40 per cent devaluation of the naira in the week before PZ Cussons’ (PZC) results led to a slashing of its dividend and a paring back of profit forecasts, as the Carex and Imperial Leather owner’s revenue plunged due to ongoing currency headaches in Africa.

The Nigerian central bank floated the naira in June last year in a bid to improve market conditions for foreign investors, replacing a complicated foreign exchange regime. The move has resulted in a plunge in the value of the currency, which is down 70 per cent over the past year.  

The impact on PZ Cussons has been significant, given Nigeria is its biggest single market. The naira’s devaluation meant a painful £88.2mn foreign exchange loss in the half, and contributed 88 per cent of the overall contraction in sales as Africa revenue collapsed by almost a third, despite 12 rounds of price hikes in Nigeria since the start of the year.

As previously announced, the company is trying to de-list its Nigerian subsidiary through buying out minority shareholders. The transaction is expected to complete by the end of this year.

Given the tough trading conditions, the board found it “prudent” to cut the dividend almost in half. It now expects an adjusted operating profit for the year of £55mn-£60mn, down sharply from a guidance range of £61.5mn-£68.2mn in September.

On a statutory basis, revenue went backwards across all geographies. While a notable bright spot in Europe and the Americas was market share gains for the UK personal care business for the first time in several years, a weaker beauty brand performance drove a 2 per cent revenue fall. Like Nigeria, Asia Pacific was also hit by foreign exchange headwinds, which, combined with struggling baby product sales in Indonesia, meant a 13 per cent decline in revenue there.

Like-for-like revenue growth came in at 2.2 per cent, an uplift that relied on price increases as volumes fell 4.8 per cent. The adjusted operating margin rose by 110 basis points.

The shares are rated at 12 times forward consensus earnings, which isn't demanding when set against consumer goods competitors. But a share price revival in the short term won't be easy given the challenging outlook, as indicated by Investec cutting its operating profit and earnings per share (EPS) forecasts for next year by 16 per cent and 15 per cent respectively. Hold.

Last IC view: Hold, 159p, 26 Sep 2023