PZ Cussons (PZ) is dealing with the consumer slowdown better than its peers, we believe. The reasons are its broad range of Home and Personal Care (HPC) products, which are both branded and in the value range, its exposure to the still-growing electrical appliances market, and its careful balance sheet management.
· PZ has high market share in dishwashing liquids (c.62% market share according to Euromonitor) and in soap (c.30% market share).
· In contrast with some listed peers, PZ has avoided financial leverage, and has generally avoided high dividend pay-outs. We forecast net cash at 9% of equity in 2015e.
· Naira devaluation negatively impacts the consumer and we reduce our sales forecasts for PZ by 9-10% for the forecast period 2015e-2019e, though we note that our 2018e-2019e forecasts remain well ahead of consensus estimates.
· We lower our EBIT and PBT forecasts for the period 2015e-2019e, and lower our Net Profits forecasts by 44%-59% in the period 2015e -2019e.
· However, we believe that PZ is unusual among Nigerian HPC companies in being able to grow its sales, albeit slowly, despite consumer weakness. We forecast sales growth in every year 2015e-2019e.
· While mass-market HPC sales are soft, we observe that sales of electrical appliances (Haier Thermocool) to upper middle class customers remain strong.
· We reduce our valuation of PZ from N34.6/s and set a new price target of N29.7/s. We value PZ by combining a discounted cash flow model with a relative valuation of spot multiples in a ratio of 60:40. We retain our Hold recommendation on the stock.
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