Cussons’ interim results, released yesterday, were pretty solid given what has been going on in Nigeria, one of its most important markets. Revenue and profits were slightly lower in the West African nation as a result of social unrest in the north, flooding in a number of states and the impact of a cut in fuel subsidies.
Cussons also operates in developed markets in Europe and Asia. The Australian business returned to profit in the period. The European beauty division saw revenue and profits rise, boosted by the continued growth of The Sanctuary branded products and the recently acquired Fudge hair-care brand performing well.
In the six months to November 30, revenues rose by 2pc to £414.8m, with pre-tax profit up 9.7pc to £44.1m. This was in line with analysts’ expectations. The dividend was increased by 5.4pc to 2.35p and it will be paid on April 8.
Note that the founding family still owning a 35pc stake in the business.
The shares are trading on a May 2013 earnings multiple of 23.4 falling to 20.2 in 2014. This is discounting a significant amount of future growth. Of course, the group has excellent long-term prospects and, over the long-term it could be argued that the shares offer value at this level. However, Questor thinks the valuation is a little too full.
Based on the current elevated rating and the illiquid nature of the shares, Questor cannot advise a purchase at the current level. Indeed, this is a consensus view among analysts with none of the City scribes monitored by Bloomberg rating the shares as a buy. Four say hold and five say sell and the average price target is 340p, some 9pc below the current share price.
Questor says avoid. Any investor who wants to play the theme should buy Unilever, which generates 55pc of sales from emerging markets and trades on a current-year earnings multiple of 17.4.