Stock market

Down 43% in a year, I think this value stock is poised for a comeback.

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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 deep trouble and worth walking away from. But it may be that the reaction has been overdone and it is now a real bargain-priced stock. Here’s one I’ve seen that I think is the latter.

Details of the firm

PZ Cussons (LSE:PZC) is a well-known FTSE 250 The company is an international consumer goods business that owns brands such as Carex And Imperial Leather. As such, it primarily operates in the hygiene and beauty sector, but has a wide portfolio.

In most cases, such consumer goods businesses do well. After all, the price level of many products is low, which means that they are not luxury items. Moreover, given the everyday nature of many items, they are necessities rather than discretionary. So the share price should be stable even during economic uncertainty.

Yet for PZ Cussons, the stock is down 43% over the past year. In fact, last month it hit a low level not seen in a decade!

Problems in Africa

A major issue is its exposure to emerging markets. For example, about a third of total revenue comes from African operations, with Nigeria accounting for the largest share. Despite this, the local currency has depreciated a lot. In a report during February, the firm said the currency had lost 70 percent in value over the past year.

This has really hurt the business. For example, in the half-yearly report released earlier this year, revenue came in at £277.1m, down £59.8m on the same period last year. Amazingly, £52.9m of this fall was attributed to the Nigerian Naira!

The management said it is dealing with the issue. I don’t think it takes a genius to figure out that action will be taken.

In an update last month, the company said it “Started working on plans to transform our portfolio, focusing on where the business could be most competitive.” I guess Africa would be a low priority.

Just a shock

Despite the African headache, I’m thinking of buying the stock now. Local currency issues do not mean PZ Cussons is a bad business. Refocusing on other markets around the world that are more stable, I believe this will 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 sectors, I think it makes sense to add a large, mature value stock like PZ Cussons to my portfolio. Over the long term, I believe the share price could be fine… not to mention the dividend income I could pick up along the way.


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