I’d load up right now with the shares of at least two fast-moving consumer goods companies, and the first is the FTSE 250’s PZ Cussons (LSE: PZC). Whereas cyclical firms see demand for their products rising and falling in line with the general health of the economy, people tend to keep on buying their favourite branded consumer goods such as PZ Cusson’s Carex, Imperial Leather, and Original Source.
A fair-looking valuation
With the share price near 200p as I write, the valuation looks attractive to me. The forward-looking earnings multiple for the trading year to May 2021 sits just below 15 and the anticipated dividend yield is a little above 4.2%. Although dividends have been flat for around three years, City analysts following the firm expect a resumption of modest growth in dividend payments ahead.
In an update at the end of September, the directors said they expect market conditions to remain challenging across the firm’s “key geographies” for the rest of the first half of the trading year to the end of November; however, they reckon there will likely be an improvement in the second half of the year. Meanwhile, the share price has slipped back in recent weeks. I think the stock looks attractive.
The second fast-moving consumer goods firm I like is the FTSE 100’s Unilever (LSE: UNLV), which owns popular brands such as Dove, Hellmann’s, Knorr, Lipton, Magnum, Sunsilk, and Surf. At 4,583p, the share price has slipped back around 9% since peaking at the beginning of July.
The forward-looking earnings multiple for 2020 stands near 19 and the anticipated dividend yield is just over 3.4%. That’s not a bargain valuation, but the company has an impressive record of rising revenue, earnings and cash flow and has always supported a high-looking valuation for as long as I can remember.
In an October update, the company said it expects underlying sales growth for the full year to be “in the lower half of our multi-year 3-5% range.” The directors also expect an improvement in underlying operating margin to power “another year” of strong free cash flow. I reckon the outlook is encouraging for the ongoing health of shareholder dividends.
Accounting services software
The Sage Group (LSE: SGE) provides integrated accounting, payroll, and payments solutions and there’s a high degree of defensiveness in operations because once businesses have adopted the Sage solution, it’s difficult and costly to switch suppliers, so many opt to renew their contracts.
The attractions of the business have led to the shares being highly rated by the market, but in July in a trading update, the share price began a 20% slide when the company said it expected its organic operating profit margin to be at the lower end of the previously guided range of 23% to 25%. However, since the beginning of October, the shares have been climbing again.
At today’s 714p share price, the forward-looking earnings multiple for the trading year to September 2020 is just below 23 and the anticipated dividend yield is a little under 2.5%. Meanwhile, in September the company said it is evaluating its strategic options for the Sage Pay business division, including the possibility of a sale. If a deal emerges, it could add shareholder value.
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Kevin Godbold has no position in any share mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK owns shares of PZ Cussons. The Motley Fool UK has recommended Sage Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019