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Yesterday (18 September) the PZ Cussons (LSE:PZC) share value dropped by 15%. This can be 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 fascinated with shopping for the inventory.
Issues in Africa
Firstly, let’s get the unhealthy information out of the way in which. The primary purpose 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 way of to the tip of Could, with outcomes out in September.
Within the Could-Could 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 Could 2023 to £167m in Could 2024.
Within the report, the underperformance was blamed on the devaluation of the Nigerian naira. The enterprise earns cash within the native forex 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 influence 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 can be a unfavorable not simply this yr however doubtlessly going ahead. Due to this fact, 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 targeted on bettering US greenback sourcing in Africa, that means that it doesn’t must deal as a lot in native forex. The worth of the greenback is far much less unstable, that means that earnings received’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 nicely. The UK market is doing significantly better, with Carex posting a development yr. The preliminary in-store launch of Childs Farm within the US additionally bodes nicely for the approaching yr for that model.
Turning into a worth play
Let’s additionally not overlook that lots of the manufacturers that PZ Cussons sells are client staples. This could act to make it a defensive inventory which might do nicely if we get a inventory market crash.
The primary danger 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 might be holding an unrealised loss for a while earlier than it has an opportunity to make a comeback. Even with this, I believe it appears to be like like a fantastic worth buy for my portfolio.
