The fast moving consumer goods sector is an attractive one for investors. Companies in this sector tend to be resilient through economic cycles, because their products are bought over and over again. And if the company owns popular, trusted brands and is widely diversified geographically, the attraction is all the greater.
PZ Cussons (LSE: PZC) boasts these qualities and they’re showcased in a solid trading update today. The shares are little changed at 339p, valuing the FTSE 250 firm at £1.4bn, and I reckon now could be a great time to buy a slice of this excellent business.
International brands powerhouse
In today’s release, ahead of annual results for its financial year ended 31 May, Cussons said “the overall performance of the Group has been in line with expectations”.
Competitive market conditions in the UK have been countered robustly by relaunches of the Imperial Leather range and Sanctuary brand plus successful new product launches from the likes of Carex, Original Source and St Tropez.
Meanwhile, in the group’s large Nigeria market, where consumers are under significant inflationary pressure, Cussons said it’s trading relatively well due to its diverse product range (electricals and food as well as personal goods) and offerings at all price points.
The group also operates in Poland, Greece, Australia, Indonesia, Thailand, the Middle East, Ghana and Kenya. Across the board, management said it’s successfully countering ongoing raw material and exchange rate volatility with tight control of costs and margin improvement initiatives. It also said the group’s balance sheet remains strong and that it’s “well placed to pursue new opportunities as they arise”.
City forecasts put Cussons on a 12-month forward price-to-earnings (P/E) ratio of 19. This compares with multiples of 21.5 and 23 for FTSE 100 consumer goods peers Unilever and Reckitt Benckiser. As such, I’m persuaded that Cussons is an attractive stock to buy at its current price.
Too pricey for me
I’m rather less enamoured of Cussons’ FTSE 250 index compatriot Ocado (LSE: OCDO). At a share price of 268p, the online grocer is valued at £1.7bn, compared with Cussons’ £1.4bn.
Yet despite its higher valuation, Ocado is forecast to post a pre-tax profit of less than £10m for its financial year ending November, compared with over £100m expected from Cussons for its year just ended. Furthermore, Ocado trades on a 12-month forward P/E of over 190, compared with Cussons’ 19.
After three or more years of interest from/discussions with “multiple potential international partners” about them adopting Ocado’s ‘Smart Platform’, the company announced a first deal last week. It isn’t with a global giant, as shareholders have long been hoping, but with an as-yet-unnamed “regional European retailer”.
Will there be more deals? Well, management originally told shareholders to expect a first deal to be inked in 2015. The current line from management is to expect multiple agreements “in the medium term”. Given the poor record of forecasting, who knows when (or if) further deals will materialise?
I’m underwhelmed by the first agreement that’s just been announced and I simply can’t see that Ocado’s current sky-high valuation is merited. If I held the shares personally, I’d be looking to sell and buy into a company with a more tangible growth trajectory and reasonable valuation.