There are numerous European companies that have been actively executing strategies to benefit from the great growth opportunities in Africa. One of the most sought after destinations is Nigeria, an obvious target market with more than 150 million people, not only is it the most populous nation in Africa but it is certainly also one of the fastest growing consumer markets in the world.
An increasing number of people now agree that Nigeria has much in common with Brazil; it has a similar amount of citizens, it is a nation with abundant resources, an increasingly functional democracy and a well regulated financial system.
You probably remember the days when only very few saw a future for Brazil. It was very easily dismissed as a dysfunctional country that would never live up to its promises. This was not very long ago, in fact, this is what people thought of Brazil well into the ‘90s!
Although Brazil still has a number of challenges, today, most of us support the case for its place in the world as a leading nation. A total turnaround and a true example of how perception often lags reality…
If you mention Nigeria today, in most circles you will probably still get the same kind of frown Brazil got only a decade ago. However, if you look at the bare facts, you will probably want to give Nigeria a chance and maybe even an allocation in your investment portfolio. You may remember how much we have written about how pragmatic the Nigerian central bank was in dealing with the issues in the banking sector. We have also recently witnessed facts that support the reality that the political system there is maturing into a democracy. and let us not forget that there is another advantage that could give Nigeria an edge over many other emerging markets: most Nigerians speak English.
This has worked to the advantage of India so why shouldn’t it do the same for Nigeria?
The fact that opportunities are abundant there is evidenced by the fact that the big household name companies of the likes of Cadburry’s, P&G, Unilever, Guinness, Heineken, Nestle and PZ Cussons, only to name a few, have entered this market with vigor. This week, Funmi Akinluyi, our Investment Director for Sub-Saharan Africa, tells us more about how PZ Cussons has built a presence and a position of leadership in this vast market.
You may be surprised to learn that PZ Cussons Nigeria is currently the largest subsidiary of PZ Cussons UK as it contributes 40% to the group’s total sales! The company started its operations in Nigeria as PB Nicholas & Company Ltd in 1948 and after a series of name changes and a listing on the Nigerian stock exchange in 1972, it finally adopted its present name PZ Cussons Nigeria following the merger of its parent company Paterson Zochonis with Cussons UK.
Today, PZ Cussons is Nigeria’s largest manufacturer in Nigeria; it produces and distributes a wide range of products, ranging from food & nutrition, home & personal care, pharmaceuticals and home appliances such as freezers, refrigerators and air conditioners. In other words, the essential products that define a consumer society.
The company currently has a market share of 50% in terms of turnover in the consumer goods sector and remains a threat to many of its competitors. Its main competitors are Unilever, Procter & Gamble and Reckitt Benckiser have an average market share of 16%. PZ remains ahead of its peers mainly as it has product ranges which give it access to the various demographic groups in Nigeria. Its customers range from infants to pensioners for its branded consumer goods products and the emerging middle class, which makes up 30% of the total population in Nigeria (around 50 million people!) for its range of home appliances.
Venturing into electrical appliances has given the company an exceptional edge over its peers. Even though the segment only contributes 23% to its total sales, we expect to see further growth from this segment as the market’s population continues to grow and personal income continues to increase. The Consumer goods segment remains the main contributor to turnover as it accounted for over 70% of the company’s total turnover. Overall, sales continue to grow at a rate of 22% year on year and the company has been able to achieve this as it has leading brands in its various segments.
We believe that PZ Cussons finds itself in a position of leadership because of the following reasons:
- The management team has extensive local experience compared to many of its competitors in the consumer goods market
- Continued increase of market penetration by building a distribution network of up to around 1000 distributors and 26 depots in the major regions. To put this in perspective, the closest competitor operates through only 300 distributors. In addition, PZ Cussons has embarked on a £39million 3 phase investment plan to further improve its production capacity and distribution.
- PZ Cussons’ can implement a dynamic product strategy and operate a flexible product range, sometimes even through joint ventures with leading global brands such as Glandia Manufacturing Nutritional Beverage for its milk and energy beverages and Haizer Thermacool for its electrical appliances product range.
The stock has appreciated by 80% from last year’s price and it remains one of the stocks preferred by many investors as it continued to report positive results even during the turbulent times in 2009. The company is known for its generous dividend policy, which makes it the darling and quintessential holding of many local institutional investors.
The dilapidated infrastructure in Nigeria has continued to hinder the distribution of its various products while the lack of power results in higher energy costs for the company, which currently contribute at least 20% to the operating cost of the business.
Today, both the Nigerian Federal and State governments are heavily investing in improved infrastructure such as roads and power supply in Nigeria. PZ Cussons will without a much doubt be one of the first boats to rise on this tide.
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