PZ Cussons (LSE: PZC) might not be as appealing as some FTSE 250 firms. The recent stock market crash leaves many of the index’s shares trading on sub-10 earnings multiples. But I think a forward price-to-earnings (P/E) ratio of around 15 times fails to reflect the exceptional profits opportunities in its emerging markets.
Besides, a chunky dividend yield of 4.5% for the current fiscal year (to May 2021) boosts the value on offer from this household goods colossus.
Bless the gains down in Africa
Africa has been a huge drag on Cussons in recent years. Rising inflation and supply issues have dented sales in its critical Nigerian marketplace in particular. The Covid-19 outbreak and the subsequent impact on energy prices in the oil-dependent country threatens to keep the FTSE 250 firm’s performance in the continent’s single largest economy, along with Ghana and Kenya, under pressure for a little longer too.
Still, there’s no disputing the exceptional revenue opportunities Cussons has in the region over the long term. As the experts at the Brookings Institution commented: “Africa is one of the fastest-growing consumer markets in the world.” Indeed, household consumption has risen faster than gross domestic product in recent years.
Consumer spending had also grown at a compound annual growth rate of 3.9% between 2010 and 2015. And Brookings estimates shopper expenditure, which clocked in at $1.4trn by the end of the period, will jump to $2.1trn by 2025, before marching to $2.5trn by 2030.
A FTSE 250 star
It’s likely the institution will scale back its forecasts in the wake of the coronavirus crisis. But the rationale behind its bubbly estimates remains largely intact. It also gives fast-moving consumer goods (FMCG) manufacturers reason to remain hopeful.
According to Brookings: “[With] increasing affluence, population growth, urbanization rates, and rapid spread of access to the internet and mobile phones on the continent, Africa’s emerging economies present exciting opportunities for expansion in retail and distribution.”
There’s one final nugget for Cussons’ investors in particular to get excited about. According to Brookings, “studies have shown that African consumers are savvy and brand loyal.”
The FTSE 250 firm owns some of the country’s most beloved consumer labels. From popular global products such as Imperial Leather and Carex soaps and shower gels, to best selling local brands Robb flu and cold treatments, Canoe laundry tablets and Coast milk, its goods can be found just about everywhere.
Don’t consider Cussons just to be a brilliant play on Africa though. The manufacturer also operates in Asia, a region which will be home to booming populations and wealth levels as well. And, of course, its much-loved labels should continue being well bought by its traditional European consumer base as well.
I’ve long been a fan of this company’s long-term investment outlook. And I believe that recent price weakness provides an exceptional buying opportunity for long-term investors.
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Royston Wild has no position in any of the shares mentioned. 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