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This stock can ride the inflation wave – and deliver precious dividends - Dailyforextrading

assetsfx.com

This stock can ride the inflation wave – and deliver precious dividends - Dailyforextrading

This column has yet to clean up with the gels, soaps, and tanning products specialist PZ Cussons, as our initial analysis of a year ago has so far generated a paper loss, but last week’s full-year trading statement still raises the prospect of better things to come.

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Group sales for the year to the end of May rose by 4pc on a like-for-like basis and by 7pc in the fourth quarter. That figure for the final period may have represented a slight deceleration from the third quarter’s 8.5pc advance, but it was still down to a pleasing combination of sales mix and price increases, which had no marked impact on volumes.

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That is a testament to the pricing power conveyed by the group’s brands, such as Imperial Leather and Carex.

At a time when inflation and rising input costs are concerns, investors are likely to warm to any company that can protect margins through carefully managed price increases and this may help to explain why PZ Cussons’ shares have fallen by just 1.2pc so far this year, compared with a drop of more than one fifth in the FTSE 250 index of which it is a member.

This column is mindful, however, that while relative performance is nice, it does not pay the bills if it just means a smaller loss. The good news is that the foundations are still in place for long-term capital appreciation and dividend payments.

Net cash on the balance sheet means that there is no financial pressure on the business and dividends can be funded comfortably.

Disposals are creating a simpler business, and the acquisition of Childs Farm offers growth potential as PZ Cussons’ chief executive, Jonathan Myers, and the board looks to effect a turnaround in the company’s operational and financial performance, as well as its share price.

A price-to-earnings ratio of just over 16 for the financial year just ended does not necessarily scream value, even if the historic yield of 3pc appears well underpinned.

However, the company could still look temptingly valued if it can meet management’s goals of annual low to mid-single-digit percentage sales growth, a mid-single-digit operating margin in Nigeria, and a mid-teens operating margin for the company as a whole.


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The next update from PZ Cussons will come on Sept 22, when it intends to publish its full-year results for May and a first-quarter trading update for the new financial year. Source: MSN

 

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