The soapmaker's profits are hurt by civil unrest and tough trading conditions.
When we look at familiar UK brand names, it can sometimes be easy to forget that their makers are dependent on many countries around the globe, often developing ones.
That was brought home today in the shape of interim results from PZ Cussons (LSE: PZC). Cussons is best known for the familiar Imperial Leather brand here in the UK, but also sells a number of brands across Asia and Africa. And it's that latter continent that has caused an upset.
Civil unrest in Nigeria, which accounts for 30-40% of Cussons' revenues, has been partly blamed for the lower profit that the company now expects for the full year.
Profit down, dividend up
Although overall revenues rose by 10%, a 13% fall in pre-tax profit for the half-year prompted the firm to indicate that full-year profits are now expected to be towards the bottom of the currently estimated range, with chairman Richard Harvey saying:
"We anticipate trading conditions in some markets will continue to be difficult for the remainder of the year and, in particular, we are closely monitoring the current economic and social tensions in Nigeria which may further impact the year-end outturn."
Tough conditions in Australia, together with rising raw materials costs, were also partly to blame for the worsening outlook, we were told.
There were some bright lights in the shape of stronger trading in Indonesia and parts of Europe (though, unsurprisingly, not Greece), and the acquisition of the Fudge hair care brand for £25.5m is seen as something of a high point.
All told, basic earnings per share for the first half fell by 5.5% to 6.33p, but the interim dividend has been lifted by 5% to 2.23p to reflect "confidence in the future".
Shares too pricey
The shares are now changing hands for around 295p, which is down over 5% on the day, and if we assume the full-year dividend will grow by the same 5%, we'll be looking at a potential yield of just 2% for the year. That's on a likely price-to-earnings (P/E) ratio of around 20, which seems steep.
If 2013 forecasts remain unchanged, which does seem unlikely now, we would be seeing a P/E of 17 and a dividend of 2.5%, and that makes the shares look too expensive to me even before the figures are revised. And although I do see Cussons as a long-term quality company, I think the 15% share price fall over the past month is justified.
I do expect there'll be a good time to buy in over the next year or so, but that time is not yet.
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