You get so used to company management over-selling their financial statements that the desultory opening line in today’s trading update from PZ Cussons (LSE: PZC) comes as a shock. “The board announces that the overall performance of the Group has been in line with expectations with profits broadly flat versus the comparative period”. Ho hum.
Get the balance right
That isn’t much to get excited about, and the share price was down 1.85% in early trading, although has since picked up again. There is little reason to rush and sell, however, with management presenting a more solid second line: “The Group’s balance sheet remains strong with cash generation for the period also in line with expectations”.
The good and bad in today’s statement may both be “in line with expectations”. The problem is that those expectations are now somewhat low. The company’s share price is down around 6% over the last five years, in a period when the FTSE 100 as a whole rose more than 23%. PZ Cussons has slumped 10% in the last three months, as its key European markets and Nigeria in Africa battle against tough trading conditions.
Flat expectations
European performance has been mixed, helped by new UK product launches in its washing and bathing division, under its Imperial Leather, Carex and Original Source brands, but hindered by setbacks in its beauty division, with the poor summer knocking sales of St Tropez in the UK. However, performance over the rest of its brand portfolio has been good, it said. Performance in the smaller markets of Poland and Greece was — you guessed it — “in line with expectations”.
PZ Cussons is also struggling further afield, hit by local issues tough trading conditions in Australia and currency devaluation in Nigeria. The smaller markets of Thailand, the Middle East, Ghana and Kenya were, ahem, “in line with expectations”.
In the pipeline
PZ Cussons finally makes a belated effort to ‘big up’ its latest results towards the end of the statement: “The strength of the Group‘s brand portfolio and innovation pipeline continues to ensure that the market shares of our products remain strong in all markets despite tough trading conditions.”
The company is pinning its hopes on brand renovation and innovation to underpin second-half trading results, and is looking to mitigate higher costs across its UK businesses. It boasts a solid range of soap, detergent, personal care, beauty and nutrition brands, including Imperial Leather, Original Source, Sanctuary Spa, St Tropez and Morning Fresh, but has never captured investors’ hearts to the same degree as rivals Reckitt Benckiser Group and Unilever.
Trading conditions are certainly tough globally, but investors will be looking for more signs of growth potential. PZ Cussons isn’t even that cheap, trading at just over 18 times earnings and yielding an underwhelming 2.6%, although safely covered 2.1 times. Its strong balance sheet gives investors little to worry about, but little to get excited over either. Far from sickly, but also a long way from bursting with health and vitality.
