A shocking half-year trading update has seen PZ Cussons’ (LSE:PZC) share price collapse again on Wednesday (7 February). It continues a miserable run of form for the consumer goods giant — in 2023, its shares fell by almost 30%.
The FTSE 250 company has slumped 18% in midweek trade as currency pressures in its key Nigerian market caused it to warn on profits. The business faces a struggle to turn around its ailing fortunes. As a long-term investor, however, I’m considering whether now represents an attractive buying opportunity.
Like billionaire investor Warren Buffett, I love buying quality stocks when they plummet in value. And right now Cussons shares look like a bona fide bargain. At 106p, they now trade on a price-to-earnings (P/E) ratio of 11 times for this financial year (to May 2024). What should I do next?
Naira plunges
It its half-year report, PZ Cussons slashed its adjusted operating profit forecasts for the full year to £55m-£60m. This is down from the £61.5m-£68.2m that the market had been anticipating as recently as September. And it would represent a hefty fall from the £73.3m the company reported in fiscal 2023.
The downgrade comes after revenues tumbled 17.8% between June and November, to £277.1m. Adjusted operating profit meanwhile slipped 7.8% year on year to £30.6m.
As a consequence, Cussons chopped the interim dividend by 44% to 1.5p per share.
Problems with the naira — which was devalued again in January — are a a colossal issue given Nigeria’s position as the company’s largest single market. Last year, the country was responsible for 35% of revenues at group level.
Unfortunately, Cussons doesn’t expected “a significant rebound” in the naira’s value, either. Nigeria has revalued its currency twice since last summer as it fights to attract foreign investment.
A cheap FTSE 250 share
Chart created with TradingView
As you can see, severe weakness over the past 12 months mean PZ Cussons shares now trade on a forward P/E ratio well below historical norms.
So despite its problems, I’m considering whether now could be a good time to buy the battered stock. I believe the company still has considerable long-term investment potential, underpinned by its large stable of popular labels that includes Imperial Leather and Carex soap.
I personally like Cussons’ vast exposure to emerging markets like Indonesia and Nigeria. Sales in these regions could soar as populations and disposable income levels boom.
Nigeria’s population, for instance, is tipped to hit 400m by 2050, which would make it the world’s third-most populous country. And Cussons is simplifying its operations to make the most of this lucrative market, including halving the number of its suppliers, simplifying its distribution model, and axing underperforming brands.
The verdict
Having said that, it isn’t clear by any means when conditions will start to improve in its African territory. On top of those aforementioned currency pressures, Nigeria is also beset by falling oil production, high debt, weak infrastructure, and high unemployment.
PZ Cussons also faces ongoing sales weakness in Europe, while it also has to contend with rising costs and high levels of competition across its markets.
Cussons’ share price looks attractive on paper. But right now the company remains too risky in my view. So I’d rather search for other value stocks to buy.
