Image source: Getty Images
He PZ Cussons The (LSE:PZC) share price has been on a downward trajectory for some time now, putting it in value stock territory.
Let's see what happened and if there is a buying opportunity for me.
Cleaning the house!
PZ Cussons is best known for its cleaning and hygiene products with around 30 brands. Some of these include Imperial leather, Carexand much more.
In a 12-month period, the shares have fallen 44% from 160p at this time last year to current levels of 89p.
Recent issues and operations
Last week, PZ Cussons published an annual update for the period May 2023 to May 2024. At first glance, it didn’t look too good. The headline to me was that the underperformance was mainly due to issues with the African currency – the Nigerian naira, to be exact. Currency conversions can affect trading updates when they are recorded in a local currency, and this is a prime example.
Looking deeper, the company posted a healthy net profit of over £44m. It also managed to improve its balance sheet by reducing debt levels from £251m last year to £167m in this update. If PZ’s African business is excluded from the report, comparable revenues were only down 2.6%, which is not bad considering the economic volatility globally.
The market did not react well when the news broke and the stock fell by about 15% that day. Personally, I think it was an overreaction.
To buy or not to buy?
From a forward-looking perspective, the company's management team is looking at two possible solutions. The first is to sell off the African business altogether. The other is to operate in US dollars as much as possible, as it is a much less volatile currency globally. From a risk perspective, if neither of these things happen, I wouldn't be surprised if PZ Cussons' updates look similar to last week's.
Another issue that concerns me is PZ's premium brands. In volatile times like the current one, consumers may skip branded products and opt for basic, unbranded products to save money. This could impact performance and profitability in the future.
On the other hand, it should be noted that, in my opinion, PZ Cussons has defensive attributes, as its products are basic consumer products. Everyone needs to clean their homes and themselves! Defensive capability could help the company recover from recent problems.
Moreover, the stock currently offers a dividend yield of over 5%. I should note that this yield has been boosted by the falling share price. Furthermore, dividends are never guaranteed.
Finally, top broker Deutsche Bank has given PZ Cussons a “buy” rating and a target price of 130p. This represents a potential upside of 46% from current levels. However, I always take broker forecasts with a grain of salt.
What I'm doing now
Personally, I won't be buying shares until I see some tangible movement to address the problems the company has had in Africa. This includes the sale of the business or better currency management options.
I like the business, especially its defensive traits and track record, so I'll be keeping an eye on things.
