It's worth keeping an eye on because PZ Cussons' share price has dropped 75% over the past ten years

The market no longer favors the once-dominant consumer goods company PZ Cussons

According to Jamie Ward, this presents an opportunity for investors.

The market may give up on a company at times. Investor disillusionment leads them to believe that past problems will continue forever. This seems to be the case with PZ Cussons (LSE: PZC), a consumer goods company that was once very successful but has recently encountered a number of challenges. Its valuation indicates that the market views its difficulties as the new normal, and its share price has dropped by more than 75% over the past ten years. Is this actually the case, though, or does the stock now offer a compelling contrarian opportunity?

A variety of home care, cosmetic, and personal care brands are owned by PZ Cussons. Its portfolio consists of brands like Imperial Leather, Carex, and St. Tropez. These are consumer goods that are frequently purchased and are typically regarded as reliable by investors. Yet, the company's performance has been severely impacted by a combination of internal errors and external pressures, even though the business appears to be defensive.

2014 was when the company's share price peaked. The shares were presumably too costly at the time, and as a result, they saw a slight decline over the following five years. However, more serious issues have begun to surface since 2019. Its exposure to Nigeria, a historically significant market for the company it began as a trading company in the region more than 140 years ago, has been a significant source of challenges. The region's PZ Cussons operations have been severely impacted by currency devaluations, economic instability, and high inflation, which has reduced profitability and produced volatility in financial performance.

Share price of PZ Cussons.

Today, Nigeria still accounts for about 25% of the company's total revenue, and its problems there have become a significant source of challenges for the business. An especially painful blow was the 2023 devaluation of the Nigerian naira, which resulted in significant losses for PZ Cussons due to foreign exchange. This is made worse by a decline in consumer confidence and supply chain interruptions, which have made it more difficult to pass cost increases on to consumers.

Nigeria is not the only country that PZ Cussons has had to deal with. Costs have increased throughout its supply chain due to inflation, and it has been more difficult to raise prices without losing market share due to fierce competition in its main business segments. Meanwhile, dwindling demand in some of its core product categories has caused difficulties for its UK operations.

Despite the challenging times of the past few years, PZ Cussons is not stagnating. Since 2020, the management group has been taking decisive action to stabilize and revitalize the company under the direction of CEO Jonathan Myers. Cost reduction, portfolio simplification, and brand strengthening are the three main pillars of the company's turnaround strategy.

First, PZ Cussons has been concentrating on its main brands again. It is concentrating more on its strongest assets rather than distributing itself too thinly over a wide range of assets. Marketing and innovation expenditures for flagship products like Carex and St. Tropez, with the goal of increasing pricing power and customer loyalty. The company's beauty segment is doing well in developed markets, which is encouraging.

In order to streamline operations, management is selling off non-core markets and brands. Considering the intricacy and unpredictability of its Nigerian operations, this is especially crucial. Nigeria is still a strategic market, but PZ Cussons is trying to lessen its exposure to risk and reliance on its historically erratic earnings contributions. Its recent sales of its Greek and Polish companies are a component of this larger rationalization plan.

Third, in an effort to improve efficiency, the company is putting cost-cutting measures into place. Its supply chain is optimized, overhead is decreased, and operational execution is enhanced. In order to reduce inflationary pressures and preserve profit margins, these initiatives are especially crucial.

Will PZ Cussons disprove the skeptics?

Whether these efforts will be sufficient to get PZ Cussons back to sustainable growth is the key question for investors. As the company's shares currently trade at a price/earnings (p/e) ratio of about ten, earnings are at a low ebb, indicating that the market is still skeptical. But if the turnaround plan works and PZ Cussons, in particular, is able to overcome its Nigerian obstacles, this valuation appears appealing. In addition, since premium beauty brands usually have larger margins, a better showing from them might give the group's profitability a much-needed boost.

Research indicates that consumer goods companies can bounce back from challenging times if they have strong brands and disciplined management. PZ Cussons has encountered tremendous but manageable challenges, but it is not a broken company. The current low share price might end up being a strong entry point if management can complete its plan.

There are risks, as usual. Nigeria's market is still complicated, and macroeconomic challenges may last longer than anticipated. Nonetheless, the company's core brands continue to be highly valuable, and its cost-cutting measures ought to offer resilience even in a challenging climate.

There are many companies in the stock market that were once written off but later proved their skeptics wrong. Even though PZ Cussons still has work to do, the market's current pessimism might be misguided if it can successfully implement its recovery plan. This might be a chance for courageous investors to purchase a consumer goods company that is on the mend at a low price. You should watch this one. Any indications of a return to the good old days should be interpreted as an opportunity to buy.