The share price of PZ Cussons plc (LON:PZC) (PZC.L) has fallen by around 6% today following the release of a trading update. It shows that the company continues to experience challenges in some of its key markets.
Since its last investor update in March, trading conditions in the UK have been as expected. However, trading conditions in Nigeria have tightened further, although the company still expects to report profit before tax that is in line with previous expectations.
Wage inflation in Nigeria continues to be a challenge for the company. It is well behind the high cost inflation of recent years, which is putting consumer discretionary income under pressure. Additionally, even though there have been higher oil prices and a relatively stable exchange rate regime, liquidity has not flowed into the economy.
In spite of this, PZ Cussons has been able to maintain market share in Nigeria, with it being hurt by a weak market rather than changes in the landscape of the categories in which it operates.
Elsewhere, the company has experienced robust performance in Asia and in Europe. While the UK consumer outlook remains challenging, the business has been able to deliver performance in Australia, Indonesia and in its beauty division that are ahead of last year.
In my view, the prospects for the PZ Cussons share price remain uncertain. The company continues to experience challenges in Nigeria and, to a lesser extent, in the UK. Although it is making various changes to its business model in order to become more efficient, ultimately weak market conditions could lead to disappointing financial performance.
As a result, I think the company’s share price could come under pressure in the near term. In the long run there could be recovery potential, but I would rather wait for evidence of improving market conditions before considering its purchase for my portfolio.