Consumer products giant PZ Cussons (PZC) plunges 10.7% lower to 187.2p after coughing up yet another punishing profit warning.

The latest earnings alert accompanies rather poor first half results showing lower adjusted pre-tax profits of £32.8m (2017: £33.3m), with ‘extremely challenging conditions’ in Nigeria masking good performances in Europe and Asia.

NIGERIAN SOAP OPERA CONTINUES

The owner of brands such as Imperial Leather soap and St. Tropez tan now expects full year pre-tax profit will be ‘towards £70m’.

That is down significantly from last year’s £80.1m pre-tax profit, driven by dire conditions in Nigeria, while and the downgrade includes an estimated £5.5m impact from ‘significant port disruption’ in the country.

During the half to 30 November, PZ Cussons continued to feel the pain from its exposure to Nigeria, where the consumer isn’t in a good place and rising supply chain costs and the weakening of the naira contributed to lower prices, volumes and margins alike.

Nigeria was the main factor behind a 71% slump in the Africa arm’s adjusted operating profits to £1.2m, although lower profits were also posted by the smaller businesses in Kenya and Ghana.

In today’s outlook statement, PZ Cussons is highly cautious: ‘We expect the consumer to remain under pressure in all of the markets in which we operate. The overall outturn for this year will in particular be affected by the macro environment in Nigeria during the seasonally-important second half of the year.’

Understandably given the problems it has caused the company, PZ Cussons’ Nigerian portfolio is ‘under continuous review’. The focus for management now is on maintaining market shares and ‘minimising downside risk until growth returns’ to the populous African nation.

SELECT BEAUTY SPOTS, STRONG BALANCE SHEET

Bulls can draw some comfort from PZ Cussons’ good overall showing in Europe, despite Brexit-related uncertainties, with robust top line growth driven by the UK washing and bathing division and the beauty division.

There was also an encouraging performance in Australia, where PZ Cussons saw good growth in profitability across its personal care, home care and food and nutrition product categories. The group also flags improved profitability in Indonesia, driven by new product launches across Imperial Leather, Cussons baby and Cussons Kids.

Manchester-headquartered PZ Cussons also has a strong balance sheet, with net debt reduced from £191.2m to £177.2m year-on-year. This enables the company to invest behind a portfolio of brands that also includes Original Source and the Rafferty’s Garden baby food brands, although the half time payout was held at 2.67p given the uncertainties ahead.

SHORE CAPITAL SAYS

Broker Shore Capital comments: ‘Looking into the remainder of full year 2019, visibility remains modest given political uncertainty in Nigeria and Indonesia (both have upcoming general elections).

'In particular Nigeria remains challenging, with port disruption remaining a significant issue and management is now guiding to pre-tax profit “towards £70m” which compares with our recently lowered forecast expectation of £80.3m and earnings per share (EPS) of 13.4p. We fully expect to be downgrading our forecasts for the group to reflect guidance (£70m of pre-tax profit would imply EPS of circa 11.5p).'

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