1 FTSE 250 stock I think you’ll be glad you bought in 30 years

G A Chester is confident this FTSE 250 (INDEXFTSE:MCX) stock has the potential to be an outstanding long-term investment.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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Well-managed companies selling stuff people want to buy will grow their sales, profits and dividends over the long term. There may be spells of weaker performance, for reasons beyond management’s control, but these can provide a great opportunity for investors to buy into the long-term growth of a fundamentally sound enterprise.

I’m convinced such an opportunity is currently on offer with FTSE 250 firm PZ Cussons  (LSE: PZC). Let me explain more fully why I think today’s investors in this particular stock will be glad they bought in 30 years’ time.

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PZC is a branded consumer goods business with a focus on Personal Care & Beauty (its largest category) and Home Care. It also owns brands in certain food and nutrition categories, which it sells in several territories, as well as electrical retail stores in Nigeria and Ghana only.

Its international family brands, such as UK number one hand wash Carex, translate seamlessly across its markets, but it also owns a good number of leading local brands in specific geographies that cater for unique consumer needs.

If you’re thinking, hmm, a bit Unilever-ish, I’d agree. PZC has similar attractions to the FTSE 100 giant, but is much smaller. The companies that became Unilever were already substantial enterprises at the end of the nineteenth century, while PZ (George Paterson and George Zochonis) were only just beginning to expand a trading post they’d founded in Sierra Leone, and the Cussons family’s soap manufacturing business — with which PZ later combined — had yet to be born.

Underlying progress

Earlier this decade, PZC was posting record annual revenues and profits, and its shares were making new all-time highs of over 400p. However, revenues and profits have fallen over the last few years, and the share price has sunk to nearer 200p.

Despite the depressed price, longer-term investors in PZC are still sitting on very strong returns, including 44 consecutive annual dividend increases, up until last year when the board maintained the payout at the same level as the prior year.

The main challenge PZC has faced over the last few years is that Nigeria — for historical reasons a major market — has presented a really tough economic backdrop. This has detracted from the underlying progress of the group, and how well it’s positioned for future growth, particularly in emerging markets.

Looking to the future

PZC’s financial strength and ongoing profitability have enabled it to continue investing in the business. In all the time Nigeria has been a drag on performance, the company has continued to expand in its target geographies, investing in its manufacturing facilities and distribution networks, investing behind its existing brands and selectively acquiring others, such as leading Australian baby food brand Rafferty’s Garden.

The decline in PZC’s revenues and earnings of recent years is expected to bottom out in its current financial year (ending in May), with growth resuming thereafter. Trading on 17 times nadir earnings, with a starting dividend yield of 4.1%, I’d happily buy the stock today, in the expectation of being handsomely rewarded over the coming decades.

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Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

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G A Chester has no position in any of the shares mentioned. 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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