ii view: PZ Cussons keeps forecasts despite currency crash

Q4 trading update to 31 May

ii round-up:

Imperial Leather soap maker PZ Cussons (LSE:PZC) today flagged fourth-quarter trading to the end of May that remained in line with management’s prior forecasts.

Sales for the full year are expected to come in at around £528 million, taking adjusted annual operating profit to between £55 million and £60 million. That compares with sales last year of £656 million and profit of £73.3 million.

Shares in the FTSE 250 company rose 1% in UK trading having come into this latest news down by a third year-to-date. That compares to a 16% gain this year for fellow consumer goods maker Unilever (LSE:ULVR). The FTSE 250 index itself is up 4% year-to-date. 

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Originally started in Africa, PZ Cussons today sells hygiene, baby and beauty related consumer goods to markets globally, but with a particular emphasis on Nigeria, the UK, Indonesia and Australia.

A devaluation of Nigeria’s currency - the Naira - since June 2023 is the single largest  in history and had continued to hit group performance, leaving African revenue in UK pounds about half during the previous third quarter, with a knock-on impact to profits. The Naira is down 23 since April's Q3 update.

In April, PZ Cussons took the decision to consider selling African assets to reduce risk. We're told a further update will be made when appropriate. 

Surplus cash in Nigeria is now minimal because of prioritising its continued repatriation, with overall group debt as of late May comfortably within management’s previously forecast range of £160-180 million.      

Full-year results are scheduled for 18 September. 

ii view:

Tracing its history back to 1894, PZ Cussons today employs over 2,600 people across operations in Europe, North America, Asia-Pacific and Africa. Group brands include Carex, Childs Farm, Cussons Baby, Morning Fresh, Original Source and Sanctuary Spa. Africa generated its biggest chunk of sales during its last reported financial year at 39%, followed by Europe and the Americas at 32% and Asia Pacific at 29%. 

For investors, exposure to Nigeria and an approximate 70% fall in its currency year-over-year to late May has taken its toll. Consumer spending in markets like Indonesia remains pressured, costs for businesses generally are elevated, while difficulties faced by its African business caused a near halving in the interim dividend to 1.5p per share. 

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On the upside, group action to address challenges include the potential sale of African assets, with its US focused St Tropez brand also up for sale. Marginal gains in product volumes sold was seen over the last quarter, reducing group debt remains a focus, while diversity of both product and geographical region persist.  

In all, a stable of recognised brands and a forecast dividend yield of around 3.5% do provide some attraction. That said, more cautious potential investors may demand evidence of an upturn in profits.

Positives: 

• Potential asset sales
• Focus on reducing debt

Negatives:

• Exposure to emerging market currencies
• Uncertain economic outlook

The average rating of stock market analysts:

Buy