- Company flags material hit from Nigerian currency devaluation
- Impact to be felt in May 2024 financial year
- Final quarter of 2023 financial year sees like-for-like growth of 6.7%
Consumer goods outfit PZ Cussons (PZC) came under pressure as an otherwise solid update was soured by a hit from a currency devaluation in Nigeria.
A resulting 6.5% slump in the share price to 163.6p extends its year-to-date fall to well in excess of 20%.
The Manchester-headquartered firm behind brands like St Tropez, Carex, Imperial Leather and Original Source said it expects revenue in the financial year ended 31 May to be around £655 million and adjusted pre-tax profit to be at least £70 million supported by strong like-for-like revenue growth of 6.7% in the final quarter of the year.
NIGERIAN CURRENCY HIT
However, a recent policy from the Central Bank of Nigeria to liberalise the foreign exchange regime and a resulting devaluation of the country’s naira currency is expected to hit performance in 2024.
In 2022 Nigeria accounted for 32.4% of PZ Cussons’ revenue. The company said that every 10% devaluation in the naira from the rate used to translate the 2023 financial year result would result in a £23 million reduction in revenue, £3 million reduction in adjusted operating profit and 0.5p reduction in adjusted earnings per share.
To put this into context the rate used for the 2023 accounts was 536 naira to the pound, the current rate is 973.8 naira to the pound.
In the long run, management thinks the economic reforms being introduced by the new government in Nigeria can be positive for its business there but for the time being the market is not hearing that message as investors concentrate on the near-term impact.
AJ Bell investment director Russ Mould commented: ‘At this point it might be fair to question exactly what role Nigeria plays for PZ Cussons given it often seems to mar the company’s updates.
‘The country is a big contributor, accounting for nearly a third of PZ Cussons’ revenue, but volatility in the currency and sometimes the country itself often seem to be a problem and may prompt questions about whether a sale of this part of the business could aid the long-term stability of the group.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Tom Sieber) and the editor of the article (James Crux) own shares in AJ Bell.
