Any stock that loses a significant amount of value in a short period of time warrants a closer inspection. It could be that the company is in serious trouble and worth staying away from. But it could be that the reaction has been overdone and it’s now a real bargain value stock. Here’s one I’ve spotted that I think is the latter.
Details of the firm
PZ Cussons (LSE:PZC) is a well-known FTSE 250 company. It’s an international consumer goods business that owns brands such as Carex and Imperial Leather. As such, it mainly operates in the hygiene and beauty area, but has a broad portfolio.
In most cases, such consumer goods businesses do well. After all, the price level of many products is low, meaning these aren’t luxury goods. Further, given the everyday nature of many items, these are necessities rather than discretionary. So even during economic uncertainty, the share price should be steady.
Yet for PZ Cussons, the stock is down 43% over the past year. In fact, last month it hit low levels not seen in over a decade!
Issues in Africa
A large problem is its exposure to emerging markets. For example, around a third of total revenue comes from African operations, with Nigeria having the largest share. Yet the local currency has depreciated heavily. In a report during February, the firm said the currency had lost 70% of value in the past year.
This has really hurt the business. For example, in the half year report released earlier this year, revenue came in at £277.1m, a fall of £59.8m from the same period in the previous year. Incredibly, £52.9m of this fall was attributed to the Nigerian naira!
Management said it’s dealing with the issue. I don’t think it takes a genius to figure out that action has to be taken.
In an update last month, the company said it has “embarked on plans to transform our portfolio, refocusing on where the business can be most competitive.” I’m guessing Africa will be less of a priority.
Just a blip
Despite the African headache, I’m thinking about buying the stock now. The issues with local currency don’t mean PZ Cussons is a bad business. By refocusing on other markets around the world that are more stable, I’m confident that this will just be a blip on the radar when we look back.
In fact, when I look at the high valuations of tech stocks and some other areas, I think it makes sense to include a larger, mature value stock like PZ Cussons in my portfolio. Over the long term, I believe the share price can recover… not to mention the dividend income I could pick up along the way.
