Just before Christmas, one of the UK’s most successful fund managers, Nick Train, brought a stake in PZ Cussons (LSE: PZC), the first new company he’s bought in nine years. PZ Cussons owns brands such as Imperial Leather soap, Morning Fresh air freshener and St Tropez fake tan.
Train’s fund manager, Lindsell Train, has amassed a stake worth £12.2m in the consumer goods company, representing 1.6% of the FTSE 250 consumer goods company’s shares, according to Refinitiv data. Most has gone into the Lindsell Train UK Equity fund, while the investment trust he manages, Finsbury Growth and Income trust, has a smaller position.
Should you follow the Train?
Train has a very impressive track record and takes a buy-and-hold approach. He tends to hold relatively few companies, which means each needs to perform well, showing the confidence he must have that PZ Cussons can improve.
The share price of the FTSE 350 company has fallen 30% over the past five years. Problems in Nigeria, one of the biggest markets for the group, have often been at the root of its problems.
Just before Train bought his stake, PZ Cussons revealed that 2019 revenue and profit would be “modestly” below the previous year on a like-for-like basis amid “challenging” market conditions and it announced the retirement of its chief executive. So there’s a period of change coming at the consumer group.
Perhaps it is the fact PZ Cussons is so out of favour, despite having strong brands and emerging market exposure, that has attracted Train to the share price.
Much cheaper than rivals
Looking at the value, PZ Cussons lags way behind other consumer goods companies as it has a P/E of only 16. Despite a recent share price fall, rival Unilever (LSE: ULVR) is far more expensive with a P/E of 22. The respective dividend yields also point to PZ Cussons being far better value than its larger more well-known competitor. The yield it provides to investors is 4% versus 3.1% for Unilever.
Against another large FTSE 100 rival, Reckitt Benckiser, PZ Cussons again measures up well when it comes to its value.
There are challenges facing the group for sure, but Train clearly believes the group has a brighter future ahead of it. Don’t be surprised if he adds further to his stake this year, which would boost the share price.
On the upside, PZ Cussons expects a stronger second half. Maybe that can be a platform for further growth alongside new direction under a different CEO. The group is also increasingly focusing on core brands that can scale internationally – this is a strategy reminiscent of Reckitt Benckiser’s and if it works, it should boost growth.
Any successful turnaround from the current depressed share price is likely to see brave investors make a significant profit along with investors in the funds and investment trusts that Train manages. I am not one of them though as I already own Reckitt Benckiser.
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Andy Ross owns shares in Reckitt Benckiser. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK owns shares of PZ Cussons. 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 2020