Soap firm is making a splash overseas

By JOANNE HART FOR THE MAIL ON SUNDAY
Updated: 07:36 EDT, 16 June 2011

It has not been an easy week for the stock market. News that inflation in Britain rose to 4.5 per cent last month fuelled speculation the Bank of England will raise base rates sooner rather than later and highlighted the challenges companies face as they grapple with soaring energy and raw materials prices.

Weak economic data from the US added to general worries about economic recovery but on Wednesday, the mood lifted.

Property giant Land Securities reported strong figures for the year to March and, even more encouragingly, forecast continued growth over the coming year.

Catering group Compass and credit checking firm Experian also delivered robust figures.

These seemed to suggest that certain companies are moving from strength to strength despite inflationary pressures and continued economic uncertainty.

The ability to make strides in this environment can be attributed to several factors, including canny management and rigorous cost control.

PZ Cussons

Ticker: PZC (Main Market)

Contact: 0161 435 1000 or pzcussons.com

Companies with exposure to fast-growing emerging markets are also making progress, such as Manchester based PZ Cussons, makers of Imperial Leather.

Imperial Leather is one of the best-known soaps in Britain, used by millions of people across the country.

The distinctive-smelling soap is just one of a stable of brands, owned by PZ Cussons, which traces its origins back to 1879.

Back then Englishman George Paterson and his Greek business partner George Zochonis set up a trading outlet in Sierra Leone, importing goods from overseas and distributing them round the country.

The company did not actually take on Imperial Leather until it bought Cussons in 1975, since when it has acquired several prominent personal care products, such as Original Source shower gel, Charles Worthington shampoo and Carex liquid soap.

In 2008, PZ bought the spa and beauty cream group Sanctuary and last year, it acquired self-tanning business St Tropez.

These recent additions are part of chief executive Alex Kanellis's plan to expand into the so-called 'masstige' market, a ghastly term referring to prestige products with a mass market price tag.

Brands such as St Tropez and Charles Worthington are widely sold in Britain but PZ Cussons has retained its international connections too, operating in such diverse locations as Indonesia, Poland and Australia, as well as its African heartland.

The company has a particularly strong base in Nigeria, where it sells a variety of products ranging from detergents to DVD players to fruit flavoured drinks.

Nigeria is a huge country with a population of more than 150 million people and PZ has built a first-class distribution network over the years, developing relationships with wholesalers and retailers in both cities and rural areas.

Last December, the company announced a joint venture with Asian agricultural business Wilmar, involving the construction of a palm oil refinery in Nigeria and the development of a range of edible oils and spreads.

Palm oil is a staple food in Nigeria but domestic production is unsophisticated and the quality is highly varied. PZ's joint venture will combine Wilmar's experience of palm oil with the British company's local knowledge and network of contacts.

The venture should also complement PZ's existing food business in Nigeria, which focuses on dairy-related produce, including such innovations as powdered yogurt.

Nigerians are very keen on yogurt but few have fridges so the powdered variety offers an ideal solution.

PZ has a large business in Indonesia as well, centred on baby products, such as talcum powder, shampoo and soothing lotions, and it sells a wide range of adult personal care products across Asia and the Middle East.

The company retains strong links with the founding families and for years was run by descendants of George Zochonis. Kanellis is an outsider however, as is new chairman Richard Harvey, former chief executive of insurance group Aviva.

Harvey is well-respected throughout the City and developed a love of Africa, following his resignation from Aviva in 2007.

Harvey and Kanellis are keen to expand PZ Cussons' business across Asia and Africa, taking advantage of the company's existing networks to develop in both fast-growing regions.

Brokers predict profits of £108 million for the year to 31 May, rising to £120 million next year and £127 million in 2012. Good growth in the dividend is expected too, from a forecast 6.5p this year to 7.2p in 2011.

Midas verdict: At 326p, PZ Cussons shares have done well over the past couple of years but there is still plenty of potential, particularly over the next three to five years.

In the short term, the business admits growth in Europe has been slow but it should speed up as economies recover and the new brands begin to deliver.

In emerging markets, PZ is extremely well-placed and sales are expected to grow rapidly. These shares should reward patient investors. Buy.