Friday, 11 September 2015

BUY: PZ Cussons (PZC)--More Cussons for My Investment Family

Shares: 233
Price: 298.76
Predicted annual dividend income: £18.64 (this purchase) and £32.32 (entire holding)

Despite having to go a little quiet of late on the purchase front (read why here) I decided the current market is too good to overlook. So, I plumped for a little top-up purchase. I had quite a few options I considered:
  1. Top up a financial giants, most likely insurer Old Mutual;
  2. Add some more drinks exposure through a Diageo top-up or new position in SABMiller;
  3. Top up on FTSE 100 consumer giant, Unilever or smaller peer PZ Cussons.
It was a hard choice. All are, in my mind, extremely attractive purchases at present. However, in the  end I plumped for option 3 and, specifically, the FTSE 250 consumer defensive company, PZ Cussons.

So, why did I choose PZC?

Who are PZ Cussons?

They are a mid-cap consumer goods company. they own a variety of pretty familiar brands. For those in the UK you no doubt known Imperial Leather, Original Source, St Tropez, Morning Fresh and--of course--the eponymous Cussons brand.

But they go beyond that. They have baby food (Rafferty's Garden), yoghurt (five:am) and detergent (Radiant) in Australia. And, in their biggest single market, they have a variety of products out there. Cooking oil (Mamador), detergent (Zip), cold ointment (Robb) and much more besides.

Whenever I think about the investing mantra "buy what you know" PZ Cussons is invariably one that comes to mind. I use Imperial Leather, Carex, and Original Source pretty much daily and Morning Fresh is a washing-up liquid I often purchase.

Undoubtedly they are a smaller consumer goods company, yes. They have a market cap of about £1.25 billion which when set aside Unilever's £79 billion seems minuscule. But don't let that lead you to thinking they are small. They have big brands in big growth areas and as a result of their size, plenty of space to grow.

Why PZ Cussons?

I first opened a position in them back in December 2014 at just below 299p per share when it was threatening its 52 week low. Recently, the company has been back down to the same levels.

Why? Well, partly because of the general market uneasiness. However, there are also some PZ Cussons specific worries.

Several of its geographical areas of focus are facing issues related to commodity pricing. Nigeria, Indonesia and Australia are all quite susceptible to low oil and commodity prices which--of course--we currently have.

In reality, these matters don't really concern me. They are a high-quality operation which has pulled growth out of the bag in previously equally unhealthy economic environments.

Interestingly, they are also still a family-run business with the current CEO--Alex Kanellis--being a great nephew of one of the founders George Zochonis. I am a fan of family-run businesses. They tend to have a much more long-term investing horizon seeing themselves more as stewards of the company. For a long-term investor, that is very attractive.

So, let's get to the figures.

Good Value

PZ Cussons has been trading in the c.20 mark for some time since my purchase back in December. And I understand why. Indeed, I would not have been upset if I had topped up at that price. They are a quality operation. 

Their historic average PE ratio for the last 5 years or so comes out at about 23. So even then, they seemed to be quite nicely priced.

Nonetheless, the recent geographic and general market turmoil that has struck has meant their price has gone down to exactly the same area as when I first opened my position. As a result, we have a pretty nice looking valuation for this year coming:

EPSP/E Ratio
Difference (%)16.07

Even assuming the lowest EPS predictions we should see a PE of about 17.5. Certainly not bargain basement relative to the market as a whole. But for PZ Cussons that seems extremely cheap. 

With further growth expected for next year the figures look even better:

EPSP/E Ratio
Difference (%)25.16

Again, lowest estimates would suggest a pretty solid valuation to me. Overall, then the company looks superb value to me.


The biggest thing you have to say about PZ Cussons is its dividend growth history. It is, in a word, spectacular. The recent hike in the final dividend to be paid next month marked the 42 consecutive year of dividend growth. Amazing.

In other words, since 1973 they have increased their dividend every year. What is amazing about that is that I was born in 1987. That means that before I was even born they had already racked up 14 years of dividend growth (an excellent record already).

Currently, the estimates would throw out a dividend of 8.27p and 8.82p per share dividend for this year and next. This would represent a 2.77% and 2.96% yield on my purchase price. Not bad.

What is more, that dividend should be covered about 2.2 times by earnings for both years. As such, it is safe and seems ripe for a continued growth trajectory going forward. 

Other Numbers

So where's the catch? Well, I don't think there is one. Their debt to equity ratio is sitting at about 0.47 which is hardly a stretch. 

That being said, debt has risen since 2010 from £48 million to £213 million. However, as the debt-to-equity figure shows, this is hardly stretching the books and has been used for acquisitions which seem--to me, at least--to be pretty good moves.

The amount of cash on their books has also decreased from about £131 million to £48 million since 2011. Again this seems to be due to acquisitions and still leaves them with about 11.2p per share in cash.

PZ Cussons and My Goals

So where does PZ Cussons fit in with my investing goals this year? Pretty well. 

Being a consumer defensive company, PZC has a beta value of about 0.7. This will help me nicely along to retaining a sub-0.85 beta value for my entire portfolio.

The yield is, of course, quite modest at about 2.7%. As a result, it does not really help me towards my current portfolio target of 1.25 times the FTSE All-Share yield (3.65%) which would be 4.5%. In reality, I am coming to the realisation that 1.25 times was maybe a little overly ambitious. Nonetheless,, it is apparent this will pull me further from that goal.

Also, my goal of getting my trade fees to below 1.3% is helped along nicely by this purchase. All told, my fees have amounted to 1.2% of my costs. Much below my target.

Unfortunately, my dividend income target for this year of £1,100 is not really helped by this purchase as I have missed the ex-dividend date for the final dividend this year for PZ Cussons. I will receive a smaller dividend for my previous holding, but this new buy will add nothing to the total. Nonetheless, next year it will help boost my income nicely.

Final Thoughts

Overall, I am very happy with my PZ Cussons purchase.

I have considered the company as one of my core purchases for a while. However, I had to wait for a price opportunity to make this an obvious reality. Now, with this purchase, it is safely within my holdings Top 10 where I expect to see its remain for some time.

What do you think? Any of you hold PZ Cussons? Would you think about topping up your holding? If you don't hold it, is there a particular reason why you do not? Be fascinated to hear your opinions.

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[Creative commons image reproduced from Flickr user Mathew Wilson]


  1. Ciao DD,
    Great company, on my radar since a very long time... Shame for the yield... 2.7 is not that great and that's what got me a bit hesitant with them so far...
    Still it's a great company, defensive, solid products... Did you go for them to differentiate from Unilever, or UL is too expensive for your taste?

    Ciao ciao


    1. I agree. A higher yield would be nicer. However, when you consider it is very well covered and it has grown c.6% a year for some time and has not grown ahead of EPS growth (running at about 7%). For me, the reason I want this as a core holding is the strength of the dividend itself rather than the yield specifically.

      I have news on my Unilever holding! I will have to find time to write it up (you may notice it has grown somewhat of late!). More news anon. I know you asked me about Unilever before. Excellent company indeed. Another core holding.

  2. A great purchase. They are on my watch list and so are Unilever, particularly the latter as their share price has been dipping under £26 quite a lot recently. I am leaning towards Unilever purely because I already have a fair bit in them and I would like to average down somewhat. They are my second biggest holding, but I paid a lot more than £25.55, so I am keen to reduce that!

    If I had spare money, I'd buy both companies.


    1. Thanks, M. I agree with you both PZC and ULVR look very attractive at the moment. As I hint at above, I have news on the Unilever front as I have built it up a bit as well. More news anon!

      I bought Unilever and PZC at very cheap levels when I opened positions in them. I am very glad to have the opportunity to top up again at those levels at the moment!

  3. Funnily enough I was weighing up PZC and ULVR at the end of last month and opted for more ULVR, but wouldn't rule out buying PZC if we get further market falls.

    I really like the fact that PZC has some great brands and yet is still a family business, but I'm uneasy by the fact that Nigeria is its primary market, where it faces several headwinds including a longer-term lower oil price, currency depreciation and the insurgency in the north of the country. As you say though they've weathered plenty of difficult economic environments before in their long history...

    On the plus side those great brands also offer an element of security all of their own, as should the SP ever fall too far, you'd think they'd become a very real takeover prospect for the likes of ULVR or P&G.

    1. I know what you mean. It is hard to decide between them. Both operate is an excellent sector (and operate well within it) but have significantly different growth profiles and--obviously--market caps.

      Personally, as I suggest above, I picked up a bit more of both as well of late.

      Nigeria is clearly an issue with regards the oil price and its effects on the economy. However, I think it has been overplayed a bit. According to recent reports, the oil sector was about 14% of the GDP (this was at oil's peak price). It had been nearly 35% in the 1990s.

      Obviously that is still huge. However, it has been rapidly dropping in recent decades due to a maturing economy with the services sector now the largest (with agriculture next). As such, this connected with the fact that people still have to live and buy consumable products such as PZC sell I hope the effect will be less dramatic than some have expected. Obviously, a jump in the oil price would be nice all round (especially for my portfolio!). We will see though. Obviously, the political situation is a lot more of an obvious issue. Although, they seem to have made inroad here.

      Yes, I am a little surprised one of the big guys has not expressed an interest in the past, in fact. I expect the reason is twofold: (1) Being a long-established family business, a successful bid is likely to be more of a challenge to pull off due to reluctance to sell; (2) PZC is a bit of an odd beast in some regards with its rather eclectic portfolio. As the big consumer companies are looking to become more focused I wonder whether PZC is more trouble than its worth (in their eyes) as they would no doubt sell a lot of the assets they had just bought!

      It is though a great company with, no doubt, a great future. Happy to sit and watch it all progress!

  4. So, so you wish you'd bought SABMiller now?!

    1. Me, I wish I bought them - been on my watch list a while, dammit!

    2. I sort of am, M! Like weenie, it has been on my watch list for a while.

      However, I am happy with my PZ Cussons for the long haul! Should serve me well.

      I am a bit indifferent about the SAB/AB InBev merger. Any merger seems so likely to be gutted by competition authorities that I see a lot of the important attractions being somewhat undermined. Similarly, if it is really the Craft Beer market which is the largest threat to the big brewers I don't think it is supermergers that are needed but rather smaller acquisitions. Just my 2p though!

      If it does go through, though, I suspect that the bid will be higher than the current share price for SAB. Probably more towards the 4,000p mark. If I am vaguely right, we could see another 10% hike from the current price.

      At some point I did want to hold a little bit of both SABMiller and AB InBev. It will no doubt still come. If they are only one company I suppose it makes the decision simpler!