One of the better performing U.K. stocks in my portfolio since the start of the elevated market volatility has unsurprisingly been PZ Cussons (PZC). Naturally, I looked towards a range of its Carex and Imperial Leather products to supplement the health and hygiene resilience of my own household…and more often than not my local supermarket was sold out. The company reflects this unsurprising reality with a trading update statement observation that it’s experienced 'exceptionally high demand' for such products. However, this was not a complete home run...
It notes that 'overall revenue in the quarter declined against last year, albeit at a reduced rate compared to the first half of the year'. This reflected not only some distribution challenges but also that consumer demand globally is a bit all over the place – and naturally this included demand for some of its other products including tanning brand St Tropez. This is why profit guidance has been retained but is likely to be bottom of the range. Overall however the company - and by extension its shareholders - cannot complain too much. Strong brands in some high-demand areas put the group in a stronger position than many other consumer products names you could mention. I was also heartened to see that any lingering balance sheet fears can be reduced further. The group did undertake a couple of (in hindsight well-timed) disposals which have helped chivvy the net debt down to £116 million and it has in excess of this sum in committed banking facilities just in case. I would call that prudent (closing in on x1 ebitda) and resilient, especially as its key manufacturing facilities remain open/operative. It also implies continuing solid free cash flow generation.
Curveballs going forward? Aside from the general Covid-19 challenges, it is no surprise to PZ Cusson watchers to see that the company still regards the situation in Nigeria as 'uncertain', noting that all its local businesses 'are likely to be impacted by the significant disruption to both manufacturing and route to market'. There was a time when I would have highlighted the name as a differentiated Africa play, with an outsized proportion of turnover/profits being achieved on that Continent. Struggles in the last few years - mainly in its key Nigerian market exposure - have changed the mix (especially of profits) towards Asia and the G7 nations. The compressed call option is still there though. I still expect a positive payoff from such exposure...at some point in the 2020s.
Low teens earnings multiples and to my mind a capability (no updated comment) to pay the 4%+ dividend yield. With a new CEO recently announced, there might be a few new ideas too in this slightly unusual company. I remain a firm holder and when it is time to slap back on some suntan lotion a fairer value nearer 250p may well result. In the meantime, keep washing your hands and stay on board this one.
Filed under: PZ Cussons, oil price, Bidstack, Catenae, Blue Prism Group, gold
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