I’ve had a rummage through the Motley Fool archives and it’s clear that I’ve been keen on fast-moving consumer goods firm PZ Cussons (LSE: PZC).
However, the share price hasn’t done much to reward me for my faith in the business. Over the past 28 months, it’s fallen by around 45% — ouch! But today’s news from the company makes me believe better times could be ahead for shareholders in 2020 and beyond.
As I write, the share price sits close to 192p, and the valuation now looks quite reasonable compared to the high ratings I normally see in the sector. The forward-looking earnings multiple for the trading year to May 2021 is just over 14 and the anticipated dividend yield is a little over 4.4%.
Challenging market conditions
Today’s trading update covers the half-year to 30 November, a period during which “challenging” market conditions across “key” geographies produced a decline in revenue and operating profit compared with the equivalent period a year earlier. But I’m encouraged to learn that the company grew its market share in the UK, USA and Indonesia. Compared to last year, revenue for the firm’s Focus Brands came in flat, which is better than a decline and gives me hope that advances can be made later.
PZ Cussons maintained its level of marketing spend during the period and plans to increase it in the second half, which could drive higher sales. Naturally, the firm is bearing down on costs and will outline its plans to reduce overheads “later in the year.” And there’s plenty of nipping and tucking going on. The directors have reached agreements with buyers for the businesses in Greece and Poland, and “portfolio restructuring continues”.
Meanwhile, there’s good news about the net debt position because of the proceeds from disposals and an ongoing focus on cash management. And looking ahead, the directors expect a stronger second half as long as the general economic and trading environment doesn’t worsen. For the full trading year, adjusted profit before tax will likely be “modestly below” last year on a like-for-like basis.
Is this the point of maximum value?
Super-investor Warren Buffett once said something like, “you pay a high price for a cheery consensus.” And he’s well known for buying the shares of quality companies when the outlook is a bit murky and the valuation is depressed. And that’s what I think I’m seeing with PZ Cussons now.
The firm also announced that its long-serving chief executive, Alex Kanellis, will retire on 31 January 2020, and the search for his successor should be completed by the first half of next year. He’s done a good job during his time in office, the firm said, but I think change at the top can usher in new determination, enthusiasm and drive. For me, the building blocks for a turnaround seem to be lining up.
That 4.4% dividend yield looks attractive, I think, and it could be worth me buying some of the shares to collect the yield while waiting for recovery and growth in the business.
