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As sector giant Unilever announces it is moving its HQ to Rotterdam, but keeping its main London listing, smaller rival PZ Cussons has its own big news, in the form of short trading update. Unfortunately it’s not positive. Rather a profits warning which has punished the shares by up to a quarter to flirt with 200p, doubling the pre-existing losses from last summer’s 367p peak.
Having admitted in December that tough trading conditions were likely to continue for the full year, and then clarifying in January that the UK and Nigeria could be problematic for 2018 group performance, things have clearly failed to improve, perhaps worsened. Management has thus been forced to take the red pen to pre-tax profits guidance, now forecast £80-85m, below Bloomberg consensus of £95-100m.
Today’s update adds to December’s admission that H1 2018 profits would be -10% YoY, with “tough trading conditions expected to continue for the full year… the consumer under pressure in all markets”. H2 product launches designed to help ensure a flattish 2018, coupled with a Nigerian seasonal ramp-up, have both failed to live up to expectations. Weakness in both the UK and Nigeria also looks like being too much for welcome strength in Asia (Australia, Indonesia) to offset.
Consumer confidence remains an issue in the UK, due to economic uncertainty and high inflation/low wage growth conundrum. Inflation is also dampening demand and prices in Nigeria. A cost cutting review has also been announced, focusing on less packaging and fewer, simpler but bigger projects. But will this be enough?#
The shares are well off their worst levels (-18%; 226p) thanks to the usual bargain-hunters. However, having already bounced 200-241p, to close the gap to 2016 lows, the risk is that this level becomes a new hurdle, preventing any closing of the new 240-275p gap from prior 2018 lows. At least until we investors see proof of a turnaround in those problem geographies. Or that the cost cutting review is the answer to all their problems.
Mike van Dulken, Head of Research, 15 Mar
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