Picture supply: Getty Pictures
Yesterday (18 September) the PZ Cussons (LSE:PZC) share value dropped by 15%. It is a massive transfer for a FTSE 250 inventory that has a market cap of £385m. But regardless of the unhealthy information behind the sharp fall, I’m fairly optimistic in regards to the long-term outlook for the enterprise. Right here’s why I’m eager about shopping for the inventory.
Issues in Africa
Firstly, let’s get the unhealthy information out of the way in which. The principle cause for the drop was the discharge of the full-year outcomes. It might sound odd for these to return out in September, however the agency operates on a monetary yr that runs by to the tip of Might, with outcomes out in September.
Within the Might-Might interval, the enterprise noticed income drop by 19.6% versus the yr prior, with revenue earlier than tax falling by 39.7%. Even with this drop, it nonetheless recorded a revenue of £44.7m. Gross debt lowered considerably from £251m on the finish of Might 2023 to £167m in Might 2024.
Within the report, the underperformance was blamed on the devaluation of the Nigerian naira. The enterprise earns cash within the native foreign money from operations within the nation. But it has to promote this and purchase British kilos. So the truth that the naira devalued by 57% through the yr massively eroded income for PZ Cussons.
The impression of that is very telling. If we exclude Africa, like-for-like income solely fell by 2.6%.
Options from right here
I perceive that the autumn in monetary efficiency has spooked some buyers. But the administration crew are taking motion. They knew that African operations could be a destructive not simply this yr however doubtlessly going ahead. Subsequently, it has already began conversations round promoting it off. The report famous that “the board has received a number of expressions of interest in the Africa business and it is possible that this could lead to a partial or full sale”.
Till this occurs, the enterprise is concentrated on bettering US greenback sourcing in Africa, that means that it doesn’t should deal as a lot in native foreign money. The worth of the greenback is way much less risky, that means that earnings gained’t be impacted as a lot.
After I put this all collectively, I don’t see the corporate’s Nigerian operations as being an issue if we quick ahead a few years down the road. Excluding Africa, issues are going properly. The UK market is doing significantly better, with Carex posting a progress yr. The preliminary in-store launch of Childs Farm within the US additionally bodes properly for the approaching yr for that model.
Turning into a price play
Let’s additionally not overlook that lots of the manufacturers that PZ Cussons sells are shopper staples. This could act to make it a defensive inventory which might do properly if we get a inventory market crash.
The principle threat I see is that I is likely to be too early in shopping for the dip right here. The inventory is now down 49% over the previous yr. If pessimism persists, I may very well be holding an unrealised loss for a while earlier than it has an opportunity to make a comeback. Even with this, I feel it seems to be like a terrific worth buy for my portfolio.
