PZ Cussons (LSE: PZC) used to be one of the most reliable earnings generators out there. Largely speaking, demand for its soaps and shower gels remains pretty robust at all points of the economic cycle. Its highly popular brands like Imperial Leather and Carex gave it protection from competitive threats, too. This robustness has allowed this cheap UK share to lift the annual dividend for an astonishing 44 years on the bounce up until 2017.
The consumer goods giant hasn’t had things all its own way in more recent years, however. Sure, the pandemic gave sales of its soaps a significant boost over the last 18 months or so. But the problem of soaring costs and particularly harsh economic conditions in its crucial Nigerian market has had more of an impact on investor returns in recent years. PZ Cussons was forced to rip up its progressive dividend policy a few years back as profits sank.
PZ Cussons isn’t out of the woods just yet. Cost inflation remains a big problem, while currency headwinds also pose an ongoing threat. But under new chief executive Jonathan Myers, I think the business could be on the cusp of recovery. Unusually for the business it sourced external candidates to fill the role of CEO. I think Myers, who has a 20-year stint with Proctor & Gamble on his CV alongside shorter stints with Kellogg’s and Avon, could be the person they’ve been looking for.
Dividends rise again!
Recent news flow coming from PZ Cussons of late suggests that the ship is indeed beginning to turn around. In July, the business hiked its full-year profits forecasts for the period then just ended (to May 2021), thanks in large part to a 7% year-on-year revenues jump. Adjusted pre-tax profit ending up soaring 11% year-on-year, to £68.6m.
Rising sales weren’t the only cause for celebration. Adjusted operating margins at the business rose 60 basis points year-on-year to 11.8%. Net debt levels at the company have also been falling rapidly. These dropped almost £19m in the 12 months to May, to £30.7m.
The business had the confidence to resurrect its progressive dividend policy following last year’s strong all-round result. It raised the full-year payout to 6.09p per share from 5.8p the year before. Could there be more to come?
Why I’d buy this cheap UK share
All things considered I think PZ Cussons could be a great, dirt-cheap share for me to buy. The eternal popularity of its megabrands remains a big pull, and especially as the business is turbocharging investment in them to help them retain their allure. Marketing spending on these so-called ‘must win brands’ jumped 40% in fiscal 2021.
I also like PZ Cussons’ broad geographic footprint that gives it excellent long-term sales opportunities. As I say, trading in Nigeria has been a problem of late and could continue to be problematic. However, I think its broad wingspan across emerging markets will reap huge rewards on a broader basis as personal wealth levels rise. And this could help make investors like me terrific returns.
