Picture supply: Getty Photos
A stunning half-year buying and selling replace has seen PZ Cussons’ (LSE:PZC) share value collapse once more on Wednesday (7 February). It continues a depressing run of kind for the patron items big — in 2023, its shares fell by virtually 30%.
The FTSE 250 firm has slumped 18% in midweek commerce as foreign money pressures in its key Nigerian market brought on it to warn on income. The enterprise faces a wrestle to show round its ailing fortunes. As a long-term investor, nonetheless, I’m contemplating whether or not now represents a pretty shopping for alternative.
Like billionaire investor Warren Buffett, I really like shopping for high quality shares after they plummet in worth. And proper now Cussons shares seem like a bona fide discount. At 106p, they now commerce on a price-to-earnings (P/E) ratio of 11 occasions for this monetary yr (to Could 2024). What ought to I do subsequent?
Naira plunges
It its half-year report, PZ Cussons slashed its adjusted working revenue forecasts for the complete yr to £55m-£60m. That is down from the £61.5m-£68.2m that the market had been anticipating as not too long ago as September. And it might symbolize a hefty fall from the £73.3m the corporate reported in fiscal 2023.
The downgrade comes after revenues tumbled 17.8% between June and November, to £277.1m. Adjusted working revenue in the meantime slipped 7.8% yr on yr to £30.6m.
As a consequence, Cussons chopped the interim dividend by 44% to 1.5p per share.
Issues with the naira — which was devalued once more in January — are a a colossal problem given Nigeria’s place as the corporate’s largest single market. Final yr, the nation was chargeable for 35% of revenues at group stage.
Sadly, Cussons doesn’t anticipated “a major rebound” within the naira’s worth, both. Nigeria has revalued its foreign money twice since final summer season because it fights to draw overseas funding.
An inexpensive FTSE 250 share
Chart created with TradingView
As you’ll be able to see, extreme weak point over the previous 12 months imply PZ Cussons shares now commerce on a ahead P/E ratio effectively under historic norms.
So regardless of its issues, I’m contemplating whether or not now could possibly be a very good time to purchase the battered inventory. I consider the corporate nonetheless has appreciable long-term funding potential, underpinned by its massive steady of widespread labels that features Imperial Leather-based and Carex cleaning soap.
I personally like Cussons’ huge publicity to rising markets like Indonesia and Nigeria. Gross sales in these areas might soar as populations and disposable revenue ranges growth.
Nigeria’s inhabitants, as an example, is tipped to hit 400m by 2050, which might make it the world’s third-most populous nation. And Cussons is simplifying its operations to profit from this profitable market, together with halving the variety of its suppliers, simplifying its distribution mannequin, and axing underperforming manufacturers.
The decision
Having stated that, it isn’t clear by any means when circumstances will begin to enhance in its African territory. On high of these aforementioned foreign money pressures, Nigeria can also be beset by falling oil manufacturing, excessive debt, weak infrastructure, and excessive unemployment.
PZ Cussons additionally faces ongoing gross sales weak point in Europe, whereas it additionally has to cope with rising prices and excessive ranges of competitors throughout its markets.
Cussons’ share value appears to be like engaging on paper. However proper now the corporate stays too dangerous for my part. So I’d somewhat seek for different worth shares to purchase.
