Price hikes help PZ Cussons stave off inflation as Africa sales rise 26%

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Consumer Goods Group PZ Cussons (PZC) released a positive third-quarter trade update highlighting strong sales momentum as manufacturer Carex-to-Morning Fresh successfully raised prices to help stave off inflation and protect margins.

Reassuringly, the FTSE 250 company also left its outlook for 2022 unchanged, although the market reaction was rather subdued.

Shares of PZ Cussons improved a modest 2% to 204.5p amid concerns over the impact on future earnings from soaring input costs and the global squeeze on consumer spending.

‘MUST WIN BRANDS’ AT MOMENTUM

For the quarter ended February, the Original Source-to-St. The manufacturer from Tropez announced an acceleration in the group’s like-for-like sales growth of 8.5%, with sales up 13.9% on a two-year comparable basis.

Sales of PZ Cussons’ “must have brands” went from negative to flat in the quarter, with sales up 12.6% from two years ago.

Among these, Carex sales remained negative year-on-year as it outperformed Covid-boosted comparisons, although the brand continued to gain market share with sales above US levels. before the pandemic.

Good performance from Morning Fresh in Australia, double-digit growth from Original Source and strong sales from Premier in Nigeria also supported the performance of must-have brands despite price increases ahead of the competition.

RECOVERY IN AFRICA CONTINUES

In terms of geographic performance, we note a 5.3% drop in sales on a like-for-like basis in Europe and the Americas, impacted by supply difficulties at Carex and St Tropez in the United States.

Same-store sales in Asia-Pacific increased by 4.3% and the recovery in Africa continued with same-store sales up an impressive 25.8%.

INPUTS COSTS ARE RISING

PZ Cussons managing director Jonathan Myers acknowledged that the external environment was “one of the toughest many of us have seen”. Input costs have continued to rise in recent weeks, and household budgets are likely to come under pressure soon. Our teams are working hard to respond to these two dynamics.

Myers continued, “We’re removing costs the consumer doesn’t appreciate and have plans in place to meet changing consumer needs, including innovation to deliver great everyday value as well as more expensive launches. While the months ahead will continue to be challenging for us and the broader consumer goods industry, the strength of our brands and our strategic progress give me confidence in the long-term prospects for the business.

BROKER VIEWS

Although he will have to absorb soaring input costs, PZ Cussons insisted that with mitigation measures in place, the impact on results for the year to May 31 was “likely limited and that it expected to generate adjusted pre-tax profit “within the range of current expectations”.

Following the robust update, Shore Capital left its 2022 guidance unchanged, seeking pre-tax profit of £65.5m and earnings per share of 12.9p.

However, the broker reiterated its “hold” recommendation and placed its 2023 estimate of £69.1m pre-tax profit and 13.6p earnings per share “under review for downward revision” in due to the fact that PZ Cussons is facing “a sharp increase in input costs”. ‘ and a global consumer ‘under increasing pressure’.

With a ‘buy’ rating and a price target of 340p, Investec continues to rate PZ Cussons as ‘significantly undervalued’.

The broker commented: “Costs have continued to rise in line with global trends, but cost reduction and pricing measures have kept the group on track with the current range of expectations.

“There is no change to our full year pre-tax profit forecast of £65m from the consensus of £65.5m.” For the year to May 2023, the group will continue to focus on mitigating inflation, and we leave our figures unchanged today with pre-tax profit of £68.4m, which is also consistent with the consensus.


Issue date: April 13, 2022

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