The Covid-19 crisis has changed the world in countless ways. It’s an event that has changed the earnings outlook for scores and scores of UK shares. And it’s one I think has bolstered the profits picture for PZ Cussons (LSE: PZC).
It’s clear that the pandemic has reset all our demands when it comes to maintaining a decent level of cleanliness. As a consequence, this UK share should expect demand for its soaps, its shower gels, washing liquids and laundry detergents to remain robust.
Fresh financials from fellow UK fast-moving consumer goods (FMCG) share Reckitt Benckiser this week illustrates how rapidly personal and home hygiene products are flying off the shelves. The FTSE 100 business said that like-for-like sales of its hygiene products rocketed almost 20% year-on-year in 2020.
It’s a phenomenon that Reckitt expects to continue too. It says that “new consumer behaviours are becoming engrained” and that “concern remains that new variants will need a sustained high level of hygiene to ensure control.” The company says, too, that four in five people globally say they intend to keep these better hygiene habits going.
The growing importance of personal and collective hygiene isn’t the only thing that should boost PZ Cussons either. This UK share, through old and beloved labels like Imperial Leather and Carex soaps and bath products, benefits from the brand power of such products. These can usually drive the top line during good times and bad. And the importance of having a strong brand could be more important now than ever.
As Stephen Rogers, managing director at the Consumer Industry Center, recently told Deloitte: “In a time of so much uncertainty, when daily decisions about personal safety and financial wellbeing are made, most consumers are reaching for brands they trust.”
But this spike in brand loyalty enduring at an elevated level is by no means guaranteed. Yes, brand power has become more important since the pandemic struck. But heavyweight brands have major competition too. Deloitte notes that “traditional brands have been losing ground to private label and niche brands over the past decade.”
So despite its undeniable brand strength, PZC needs to work hard to keep those labels relevant and not assume they’ll stay in demand.
There are also other issues that cloud PZ Cussons’ long-term outlook. Nigeria is one of the UK share’s most important markets, a region in which sales have suffered in recent years due to struggling oil prices. The rising use of green energy, could have a significant indirect effect on product sales here in the years ahead.
A strong UK share
I still think that PZ Cussons is an attractive FTSE 250 share today for Stocks and Shares ISA investors like me. City forecasts can fail to live up to reality, of course. But brokers reckon earnings here will rise 1% and 8% in the financial years to May 2021 and 2022 respectively. This leaves the FMCG giant trading on a forward price-to-earnings (P/E) ratio of around 25 times.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.