PZ Cussons results not enough to placate shareholders

PZ Cussons’ (PZC) shares were marked down by 6 per cent on the back of a mixed set of results. The consumer goods company, which owns Carex and Imperial Leather, kept its full-year guidance and dividend steady, but this wasn’t enough to prevent market jitters around demand pressures and higher net debt.

It was in Africa where the greatest top-line joy was found, despite that market driving the 5 per cent decline in overall volumes in the period (which wasn’t a terrible result given the consumer spending environment). Like-for-like (LFL) revenues were up there by 16 per cent, with distribution gains and price increases behind the performance. An adjusted operating margin uplift of 370 basis points outstripped performance in other locales.

Results elsewhere were less impressive. LFL revenues rose by 8 per cent in Asia Pacific and contracted by 6 per cent in Europe and the Americas. The latter market – where profits plunged – was hit by the continuing normalisation of handwash demand. Given that Carex sales are still up by a fifth against the pre-Covid baseline, there is a question here of just how much further they have to fall as the hyper-conscious pandemic attitude towards germs fades.

Management expects an improved margin performance in the second half of the year. And long-term revenue and margin targets were maintained. Promising stuff. But a chunky increase in adjusted net debt from £10mn to £36mn in the half raised some eyebrows.

City analysts value the shares at their five-year average of 17 times forward earnings, according to the consensus position on FactSet. This is undemanding, if not exactly cheap. We think the long-term outlook still looks promising for the company, as it invests more in key brands and adapts to a changing market. Hold. 

Last IC View: Hold, 195p, 22 Sep 2022