Companies: PZC    SSL   

In a global world, writes Gall & Eke, multinational market-leading brands can be extremely valuable and attractive to predators. Historically, personal care goods companies have shown resilience to mild economic slowdowns as they sell what many consider to be necessities.

SSL International owns the market-dominant Durex brand globally and the increasingly attractive Dr Scholl footwear brand in Europe. The broker points out that recent trading is encouraging. ‘The shares have been lingering on a forecast price-to-earnings ratio of around 16 times, which may not sound too cheap but should look very good value to a multinational predator,’ says Gall & Eke.

Distribution savings
It adds that personal goods companies spend a large proportion of their income on selling, distribution and administration costs, so once a new brand has been acquired, costs can be dramatically reduced by channelling product down the existing distribution network. In other words, deal synergies are huge and become very attractive when other avenues of earnings growth are shut off by an economic slowdown. Even if SSL does not become a target, it has huge opportunities for growth in the Asian and emerging markets.

Another personal care producer the broker thinks is worth considering is PZ Cussons, another ‘second liner’ that has a strong market share in Nigeria. The country is seeing rapid GDP growth as Africa’s largest oil producer, and the population is increasingly attracted to PZ’s personal care, nutrition and electronic consumer goods.