MIDAS SHARE TIPS: Imperial Leather maker PZ Cussons could clean up

Soap Star: PZ Cussons, which makes Imperial Leather and Sanctuary Spa items, is a buy on the stock market

If you haven’t had a bath lately, you’re not alone. As energy costs have skyrocketed and disposable incomes have fallen, businesses that rely on our frequent washing have found themselves in trouble.

The British bath crisis has caused problems for shareholders PZ Cussons into a foam. The company’s top brands include Imperial Leather, Sanctuary Spa and Original Source, and despite launching a budget brand (Cussons Creations), the company is suffering from our soap-avoiding ways.

Chief executive Jonathan Myers says that not only are British consumers bathing less, we are also giving fewer fragrances as gifts.

On the plus side, though, we’re still willing to pay to have our babies pampered, now that new baby wash addition Childs Farm is a better place for the company.

PZ Cussons is not only interested in Great Britain. The company started as a commodity trading company in Sierra Leone, shipping animal skins and palm oil to Blighty in the late 19th century. Despite a change in focus, the company has built on these international roots, and today its main target markets outside Britain are Nigeria, Indonesia and Australia.

Some of these markets are also struggling, with Indonesians feeling financial strain and buying fewer products to wash their babies. Meanwhile, Nigeria’s decision to abandon its currency peg has resulted in the biggest ever decline in its currency, the naira, negatively impacting PZ Cussons’ profitability and ability to predict future performance.

The naira hit new lows this week. Every 10 percent decline in the value of the naira results in a £23 million decline in PZ Cussons’ turnover, and a £3 million decline in operating profit. To compensate, you would have to sell a lot of soap.

This explains some of the fall in PZ Cussons shares, which at £1.42 are down 26 per cent in a year or 37 per cent over five years.

As the company seeks to emulate the strategies of brand powerhouses such as Unilever, which is down less than 1 percent in five years, and Reckitt Benckiser, which is down 16 percent over the same period, PZ Cussons shareholders may feel deeply concerned. can feel done. Through.

The annual figures, which were published on Tuesday, were a mixed bag. Sales rose almost 11 percent year-on-year, while unadjusted pre-tax profits fell 4.2 percent to £62 million, with earnings per share down 27 percent.

This was partly due to a £16.5 million fall in the value of the Sanctuary Spa brand, which is struggling to attract cash-strapped households back to the toilet, and also because the company has spent money on improving supply chains.

The company’s cash position has been hampered by the fact that it has £200m tied up in Nigeria and faces difficulties in repatriating, while higher minority stakes and tax burdens in Nigeria have also hit pre-tax profits.

Cussons is doing its best to simplify things in Africa, with the intention of taking PZ Cussons Nigeria private and buying out its minority stake using the naira balance it has there.

There was good news from Childs Farm, up 12 percent year-on-year, and strong performances in Australia and New Zealand. And management has kept the dividend at 6.4p.

For investors, the question mark for PZ Cussons is whether the team’s transformation will bear fruit and whether it can withstand international uncertainty.

The company is at the mercy of many factors beyond its control, and inflationary pressures could rise again globally if crude oil prices continue to rise.

On the plus side, the positive Childs Farm acquisition and continued supply chain improvements should drive growth, while sales prove resilient despite currency issues in Africa.

Myers believes the launch of budget brands and a greater focus on at-home ‘spa experiences’ to combat the cost of living will help PZ Cussons fix declining sales.

Investors will have to weigh the pros and cons.

Midas judgment: A hot tub is meant to relax, but investing in Imperial Leather has proven to be anything but. The company’s problems appear to be subsiding, but issues beyond its control mean the Nigerian part of the company will struggle for a while.

However, a falling share price makes the company attractive to new buyers. Comparing the company’s stock market valuation to forecast earnings, PZ Cussons is trading at thirteen times forward earnings for 2024. This is much less than for the broader consumer goods sector (excluding tobacco) – a good benchmark – which trades at more than 20 times earnings.

This suggests that the company may be undervalued. Dividends also help sweeten the deal, with a yield of 4.5 percent. PZ Cussons may still be in the thick of things for a short while, but those with a long-term view may feel now is the right time to get in the bath.

Traded on: Main market ticker: PZC Contact: pzcussons.com or 020 7257 2400

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