Shares: 170
Predicted annual dividend income: £13.99
On Friday I had something of a difficult day. It was my
birthday and my girlfriend had a day off yet I was I was stuck to the computer
flicking between windows. It wasn’t the football scores. It wasn’t some global
news story. It was a series of Word documents … and the FTSE share index.
I was spending the whole day writing up several months of
research which had to be finished by the weekend but the drop in the markets
meant that a number of highly appealing stocks I had been on the look at for
were dropping like flies. They really were. What is more, many of them were
hitting my 4B (“Backward Bandwagon Bargain Buy”) price. As a result, my
concentration was a little split between deep thinking on higher intellectual
pursuits and shallow flicking on lower stock prices.
Not great I know. But it paid off. One of my favourite
NIMP (Not In My Portfolio) stocks hit my target price.
Many of you will already be familiar with PZ Cussons.
Maybe you wake up to the tingling freshness of Original Source shower gels. Or
perhaps you are often finding yourself waging a war against bacteria and that
last 0.01% not dealt with by Carex hand soap. Whatever, it is likely you have
come across them—or rather their products—at some point.
PZ Cussons has been about for some time. First founded in
1879 in Sierra Leone as Paterson Zochonis named after its operators it has
grown—slowly but steadily—to become a FTSE 250 midcap with a market
capitalisation of about £1.3 billion. Not bad.
Now I am not going to lie to you. PZ Cussons is not going
to be the standout sexy stock in my portfolio. It was not a screaming bargain
to many. Nor is its yield going to make you dividend whiskers tingle like a
fresh dollop of Original Source minty shower gel. Nonetheless, this has been
exciting me for some time.
So what really excites me about PZ Cussons? Well, first
has to be the fact that it—unusually—has a Z in its name. Good start. However,
really what it offers is a series of things I find tantalisingly exciting:
1.
A strong stable of growing, defensive consumer
brands;
2.
Exposure and experience in some high growth
markets;
3.
What appears to be intelligent acquisition and
expansion plans;
4.
Very good fundamentals;
5.
Solid yet—most importantly—strongly growing
dividend;
All in all this made PZ Cussons a wonderful company. However,
before this it also had something else: a high price. Over the last five years
it has held an average P/E ratio of about 21. If this was still present on
predicted EPS for next year of 17.8p per share we should expect a share price
of about 373.8p.
As a result, to be able to pick the shares up at a price
of under 300p was always something that caught my attention. Indeed, the last
time they were trading at this price was in September 2012.
Of course there is a reason for this price retreat and it
is chiefly related to currency and trading challenges especially in their key
heartland of Nigeria. However, this is, I believe, very much a short-term
concern and soon things will return to business as usual.
What is more, recently the management has been making purchases
and plans which will see it expand its operations and geographical reach. Both
aspects are encouraging for the long-term future and growth of the company.
What about the numbers?
So how does this all come together in the numbers? Well, it
seems that the analysts agree with my theory that short-term pain should be
swiftly forgotten. For this year coming this is what they think the EPS and P/E
ratio will look like.
EPS
|
P/E Ratio
|
|
17.8
|
16.80
|
|
High
|
20.2
|
14.80
|
Low
|
16.4
|
18.23
|
Difference (%)
|
22.02
|
None of these figures look too stretched to me for a
high-quality company such as PZ Cussons. What is more, they anticipate the
rebound the year after to be able to more than compensate.
EPS
|
P/E Ratio
|
|
19.77
|
15.12
|
|
High
|
23
|
13.00
|
Low
|
18.2
|
16.43
|
Difference (%)
|
24.96
|
This means they are predicting a growth rate of between
10 and 13% next year giving a rather nice PEG ratio of between 0.95 and 1.51.
Not bad at all for a defensive consumer company like PZ Cussons.
The company is also not highly leveraged. It has a debt
to equity ratio of 0.25 which is very reasonable.
How does it help my investment goals?
So how does PZ Cussons fit into my goals for the year?
Well for 2014 it does not a great deal as it is so late in the year that it
will not contribute anything to my dividend tally. However, otherwise it is
quite useful.
With a Beta volatility rating of 0.52 it will help me to
achieve a volatility for my whole portfolio of 0.85 or less for this year.
And what about the dividends? Well first of all PZ
Cussons has an excellent record of over 40 years of increasing their dividends.
What is more, it is consistently around the 7% which is set to continue for the
next two years. This means that it is predicted that PZ Cussons will pay out
8.23p and 8.86p per share for this year and next. This would yield an—admittedly
not overwhelmingly impressive—2.75% and 2.96% for the next two years.
However, it is not the high yield I admire with PZ
Cussons but the consistent and high growth rate. Some of you may have noticed
the shift towards a few more dividend growth stocks and this is another case of
this.
What is more, this dividend growth even with faltering EPS
growth this year looks pretty certain due to a solid dividend cover. Indeed,
even with the figures offered above it should be covered well over twice by
earnings for the next two years.
As a result, although the dividend yield may not add a
lot to my investment goals in the short term I expect PZ Cussons will be a star
performer for my long-term investment goals.
Overall, I am very happy with my addition of PZ Cussons.
Indeed, if when I next get some investing cash to go the markets way it is
still hovering around the 300p mark I will likely top up my holding.
[Creative commons image reproduced from Flickr user Mathew Wilson]
[Creative commons image reproduced from Flickr user Mathew Wilson]
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