Negative FX and emerging market challenges
PZ Cussons' (L:PZC) European business remains resilient, but Nigeria continues to weigh on profits given the uncertain outlook for consumer spending and FX. The stock dropped c 9% after results and trades at 13.6x 2017e P/E, a sharp discount to its peer group. Although the company is well positioned to benefit from a turnaround in its core African business, in our view a re-rating is dependent on an improvement in macro conditions.
Interim results – Europe balances the rest
Reiterating December’s update, robust trading in Europe largely offset challenging conditions in Asia and Africa. H116 like-for-like revenues were stable at £385.9m, with operating margin declining 20bp to 11.7%. Slowing GDP growth in the key Nigerian and Indonesian markets has affected consumer demand and FX had a negative impact of £34.7m on revenues and £2.4m on operating profit. Management has stated that H2 trading should be in line with expectations, although there is continued FX downside risk.
Nigeria weighs on profits
Sustained low oil prices have contributed to an environment of tight liquidity, impacting on disposable incomes. The electrical division (one-third of Nigerian revenues) declined by 12.4% to £45.4m. Management is implementing changes to its product portfolio to maintain market share without discounting, but with the risk of a further devaluation in the naira, the outlook in Nigeria remains uncertain.
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