PZ Cussons puts investors in a lather as shares fall on transformation update

PZ Cussons failed to convince the markets this week on the progress of its ongoing transformation as the personal care group sold off its stake in the Nigerian edible oils business for £51m.

It is part of the Imperial Leather and Carex owner’s plans to simplify the group by reducing exposure to the African market.

PZ Cussons agreed to sell its 50% equity interest in PZ Wilmar to joint venture partner Wilmar International for $70m, claiming on Wednesday that the move marked a “significant step” in the transformation.

The group plans to use the proceeds from the deal to pay down debt and improve its credit and bank covenant metrics.

Formed in 2010 through a joint venture of PZ Cussons and Wilmar, PZ Wilmar is one of the largest palm oil businesses in Nigeria, with the Mamador and Devon King’s brands holding market-leading positions.

Shares in PZ Cussons initially rallied as markets opened on Wednesday before investors fully digested the announcement and accompanying trading update. The stock ended the day down 6.6% and further declines today (19 June) meant the share price has fallen by almost 15% in the past five days to 72p.

PZ Cussons CEO Jonathan Myers said he was “delighted” with the sale as it meant exiting a non-core category, reducing the risk associated with the presence in Nigeria and materially strengthening the balance sheet.

Its presence in Nigeria has been a drag on the financial performance in recent years as the business battled huge currency devaluations of the naira. Group revenues sank 10% to £249m and pre-tax profits declined 24% to £19.8m in the six months to 30 November because of the currency depreciation. The African operations currently account for just 25% of group revenue, down from around 40% two years ago.

As well as exploring the sale of its African business, the strategic review completed in early April 2024 also included plans to flog the St Tropez self-tanning brand.

There has been no update on St Tropez yet, but a trading update released alongside news of the oils’ disposal reported a soft performance from the brand in the US.

Like-for-like revenues are expected to rise 8% to £505m in the year to 31 May, with the performance in the second half driven by good growth in the UK and Europe and strong growth in Africa.

However, the group’s adjusted operating profits are now forecast to be in the range of £52m to £55m, narrowing from £52m to £58m previously. PZ Cussons blamed an additional £2m of extended producer responsibility (EPR) costs in the UK business and the St Tropez performance in the US for the change in guidance.

Investec downgraded its target price of 130p for the stock to 125p, but said the sale price of the joint venture was at the top end of its expected range.

It highlighted the PZ Wilmar sale would be earnings dilutive as proceeds are being used to reduce debt levels. The broker expected the disposal to reduce pre-tax profits by £4m in FY27 and by £2m in FY26.

Analyst Matthew Webb still called the move “an important strategic step forward”.

“The strategic review of the remaining African business is ongoing,” he added. “So is the St Tropez sale process, although its double-digit decline in the important US market should influence expectations on price and/or timing.”

Edward Hockin of JP Morgan Cazenove said: “Overall, the announcement moves the company a step forward on the portfolio transformation intentions laid out in April 2024.

“PZ Cussons remains well positioned to benefit from growth in many of its geographies as the company transitions, with its strategic plan announced in April 2021 focusing on ‘Must Win’ brands. It may take time for trading conditions to improve and the new strategy to start seeing its benefits, and pending the completion of its portfolio transformation agenda.”