PZ Cussons raises targets

Things are looking up for PZ Cussons (PZC). While the manufacturer and distributor of personal healthcare and consumer goods, such as Carex handwash and Imperial Leather shower gel, posted lower revenues and pre-tax profits in the year, strong post-period trading shows that it is effectively passing on costs through higher pricing and it has raised its long-term revenue growth and margin targets.

The top-line story was mixed, with price increases unable to prevent a fall in revenue in two out of three geographic markets. Sales in Africa, the company’s biggest revenue contributor, boomed by 15 per cent to £222mn on the back of distribution gains and double-digit like-for-like (LFL) growth across major brands. But struggling post-pandemic Carex sales in Europe and the Americas brought sales down there by 11 per cent to £193mn and revenue fell in Asia Pacific by 7 per cent to £174mn due to the impact of the disposal of a “non-core and low-margin” yoghurt business.

As with revenue, the margin performance was also varied, with the extent of cost pressures highlighted by management’s statement that “pricing and productivity initiatives largely [offset] cost inflation of c. £40mn”. Africa led the way again, with adjusted operating margin climbing by 440 basis points to 10 per cent. Asia Pacific’s margin was up 90 basis points to 12 per cent, while Europe and the Americas posted an eye-watering collapse of 590 basis points to take the margin down to 18 per cent.

But the current trading and outlook statement elicits optimism. In the first quarter of the new financial year, LFL sales were up by 7 per cent to £163mn due to both pricing and mix. Performance in Africa and APAC drove the uplift. And management were confident enough to hike up their long-term targets. It is now gunning for LFL revenue growth in the mid-single digits (up from low-mid single digits) and a mid-teens adjusted operating margin (up from 11.5 per cent in these results).

Numis analysts said that “we continue to see PZ Cussons as offering an attractive growth proposition”. As do we – but as demonstrated in these results there is a painful transition in motion after the booming hygiene product sales enjoyed during the pandemic. A rating of 16 times the broker’s 2023 earnings forecast doesn’t look overly demanding, but we await to see progress on the new financial targets. Hold.

Last IC view: Buy, 195p, 09 Feb 2022