The shares of consumer goods company PZ Cussons (LSE: PZC) fell 9% today, in response to a lacklustre half-year report. Cussons, which owns brands as famous as Imperial Lather and Carex, reported a 2.6% fall in like-for-like sales for the period, with operating profit collapsing by 38.5%.
A good entry point?
These results certainly aren’t compelling, but they’re not as bad as the headline figures look either. The company took a massive £15m foreign currency hit in its main market, Nigeria, an oil-based economy that has struggled in the face of the oil price crash. The company says these exceptionals have “arisen due to long outstanding brought forward trade payables denominated in US Dollars that have been settled at higher exchange rates than originally recognized.“
A rapid deterioration in the Naira has forced Cussons to increase prices, in an attempt to generate similar sales from a much lower volume. The company said that Nigerian consumers were under considerable inflationary pressure, with all products, be they imported or local, nearly doubling in price. Cussons manufactures the majority of its Nigerian products locally, which has helped it weather the storm somewhat. The company still believes it is on track to meet full-year forecasts.
Considering this perfect storm, Cussons has performed fairly well, but its short-term fate is tied to the performance of Nigeria and therefore the oil price. Trading at around 18x the average analyst earnings predictions, Cussons doesn’t exactly look like a screaming bargain, but if the company’s Nigerian fortunes were to turn around this could be a good entry point.
Rather buy Reckitt?
Fellow consumer goods company Reckitt Benckiser (LSE: RB) is a little more stable than Cussons at the moment. The owner of brands Durex and Nurofen hasn’t got any currency issues hanging over it. In fact the weak pound helped Q3 sales increase 9%, with underlying like-for-like sales increasing a more measured 4%.
There’s been some bad news-flow surrounding the company recently, with ex-director Shin Hyun-woo handed a seven year sentence in South Korea in early January, after selling humidifier sterilizers linked to deadly lung injuries. The high pay packages of the company have also recently been under scrutiny.
The company is a likely to be a steady-as-she-goes investment generally, however, with little in the way of growth. The most recent updates have been positive, but the company has actually seen declining revenues in recent times and has not made any significant operating profit advancements since 2011.
Analyst consensus places the shares on a demanding PE of 20x earnings, which is too steep considering the recent muted growth record in my view.
I believe that Cussons may be the better buy of the two, given the massive upside should its African business settle down, but that’s far from a given.
