Cussons - the story behind the story
Posted on December 7, 2007 by Richard Beddard
Filed Under Companies |
From a writer’s perspective, the frustrating thing about TV - even Internet TV - is you can’t get much detail into four minutes. The frustrating thing about magazine columns, especially one the size of mine in Moneywise, is you can cram even less into 250 words.
But here in the boundless Internet I can relay all the bits ‘n pieces I’d like to have included if only they would let me make Cussons (the movie), or write Cussons (the book).
So, this article is for readers of Moneywise and viewers of iBall who want to know more about PZ Cussons (PZC). Or, if I’m boring you already, it’s notification that you can get the highlights of this article with extra jokes read to you by the lovely Susan elsewhere…
Still with me?
This is why I thought it was worth aiming all three barrels of the Interactive Investor mothership’s arsenal of multi-media at Cussons:
Since 2000, Cussons’ profit (earnings per share) has risen 85%. Its price is 410% higher than it was then.
Profits are a good indication of a company’s performance. The share price is a good indication of investors’ enthusiasm. If the price rises quicker than profits it means investors have their dewy-eyed speculators’ goggles on, and they’re prepared to pay more for the stock because, they think the future’s…
…Soapy?
Maybe, but not exclusively. Part of the attraction of Cussons is Africa. We used this chart*1 in iBall to demonstrate the growing importance of Africa to Cussons. It shows the proportion of total sales from Africa, Europe, and Asia:
In 2007, sales in Africa overtook sales in Europe. Most of those sales were Nigerian, which is Cussons’ biggest market bar-none. And it’s not just flogging Imperial Leather there.
Cussons’ operations in Nigeria date back to 1899 and the company is using its network of depots and factories to manufacture and distribute an increasingly broad range of products like milk, medicaments, and electrical goods, to the country’s growing middle class.
The hope is this time the wealth from Nigeria’s oil and gas fields will stick around now there’s a civilian government which has already repaid most of its foreign debt.*2
Here’s a chart I couldn’t squeeze into the iBall script:
It shows operating profits in Africa, Europe and Asia. Although Africa has overtaken Europe in terms of sales, Europe’s holding its own in terms of profits. Africa is the only continent making less profit per sale than it was in 2000. The turnaround in Europe’s operating margins is most striking:
So what’s going on? Graham Calder, Cussons’ finance director, says the company’s growth so far this decade has been as much about Europe as it has about Africa, but the cost of setting up its new operations in Africa blunted margins there.
The largest growth areas in Nigeria are white goods and milk. Cussons designs, assembles and distributes fridges, air conditioners, televisions and other electrical goods from parts supplied by Haier, the Chinese giant. It manufactures and distributes powdered and evaporated milk with Glanbia, its Irish partner.
Improvements in margins will follow, says Mr Calder, which, with sales growth, probably explains investors’ enthusiasm.
Would I buy?
I wouldn’t. But that says more about me, than it does about PZC. Enthusiasm drives share prices up. I prefer to buy when the price is low, relative, for example, to average earnings over the past five or ten years. Cussons has a nine year PE ratio of 32.
It’s the mark of success that growth investors assume the Cussons story will happen. Momentum traders who buy shares in companies with upwardly trending prices are doing very well out of Cussons now. When I wrote the iBall script Cussons’ price was 199p. Today it’s 219p.
Footnotes:
- The data is from the segmental analysis in the company’s annual reports.
- For an overview, see the Economist’s country page for Nigeria.
Comments
2 Responses to “Cussons - the story behind the story”
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Richard,
I totally agree with you as i have invested in the company for over 5 years and its performance in the Nigerian Stock Exchange is mediocre versus its competitors.
The fact that the company has not capitalised on the increased liquidity in Nigeria tells you a lot about its strength on a long term basis.
Operating margins as you know can be easily modified depending on the reader of the accounts.
Regards
Ibrahim
Thanks for your comment Ibrahim. Had I happened on Cussons five or more years ago, I might have thought differently. I hope so! Well done.