AUS
NZ
UK
CA
USA
IND
Highlights
- Strategic Review of Africa Operations: PZ Cussons has initiated a review of its Africa operations, contemplating a possible exit amid economic challenges, including a declining Nigerian naira.
- Market Valuation Concerns: Deutsche Bank’s analysis indicates that the current market valuation assigns little value to PZ Cussons' Africa business, suggesting that divesting these assets may be a logical move.
- Asset Valuation Insights: The bank estimates that selling the Africa assets could generate significantly higher value compared to the current equity market valuation, leading to a potential rerating of the company's shares.
Description
In April, PZ Cussons (LSE:PZC) , the owner of Imperial Leather, announced a comprehensive review of its Africa operations, a move that could ultimately lead to the company divesting its interests on the continent. This strategic review was prompted by macroeconomic uncertainties, particularly the sharp decline of the Nigerian naira, which has raised concerns about the viability of continuing operations in the region.
CEO Jonathan Myers emphasized the need to refocus the company on areas where it can be most competitive. While management has clarified that exiting Africa is not a definitive outcome, Deutsche Bank has voiced skepticism about the attractiveness of maintaining operations in the region. Their analysts argue that keeping ties with Africa appears increasingly unappealing.
According to Deutsche Bank’s sum-of-the-parts valuation, the current equity market valuation places minimal value on PZ Cussons' Africa assets. They estimate a value of only £19 million based on a 10-year average EV/EBIT multiple of 13.8x. In stark contrast, they suggest that a sale of these assets could yield a value ranging from £90 million to £150 million, indicating a significant discrepancy.
The analysts believe that divesting the Africa business would likely lead to a positive rerating of PZ Cussons' shares. Despite the ongoing uncertainties surrounding the company's future in Africa, Deutsche Bank maintains a positive outlook on the stock, although they have adjusted the share price estimate downward from 130p to 120p. As of now, PZ Cussons shares are trading at 91.1p, reflecting the challenging market conditions and strategic considerations facing the company.
