Plunging Nigerian naira just dented this FTSE 250 stock

The tumbling Nigerian naira is hurting local and international companies. PZ Cussons (LON: PZC) share price collapsed by more than 20% on Wednesday as the company cited the deteriorating Nigerian currency. The stock tumbled to a low of 100p, meaning it has lost 60% of its value from its highest point in 2021.

PZ Cussons share price chart

PZ Cusson's financial results

In a statement, PZ Cussons said that its revenue tumbled by 17.8% in the first half of its financial year to £277.1 million. Its operating profit dropped by 7.8% to £30.6 million while the net profit plunged by over 24% to £26.1 million.

The company attributed this slowdown to its Nigerian business, which is going through a rough patch. Precisely, the management noted that the currency had crashed by over 70% in the past 12 months. The company also warned that the situation will likely continue because the naira has continued weakening, as I wrote here. The management said:

In addition to cutting its dividend, PZ Cussons decided to slash its dividend in a bid to preserve cash. It will now pay a dividend of 1.50p on April 4th of this year. 

A depreciating Nigerian naira is having a major impact on both local and international companies. For one, since PZ Cussons reports its results in pounds, it means that the value of these sales is lower than before when the currency was relatively stable.

The other challenge is that the depreciating naira has forced companies to hike prices in naira terms. As a result, with Nigeria’s unemployment rate being high and wage growth falling, many people are no longer buying as they did before. 

The most recent data showed that Nigeria’s inflation rose for 12 straight months and reached 28.9% in December. Most analysts believe that the real rate is much higher than that. 

Further, international companies are struggling to move money from Nigeria because of the existing foreign currency shortage. 

The future of the Nigerian naira

Therefore, the future of PZ Cusson’s business in Nigeria depends on how the government solves the naira crisis. Unfortunately, there is no easy path for the naira to recover since most people and businesses have shifted to the US dollar. In fact, many companies, especially in the real estate sector, have started to quote their products in USD.

It is also not clear whether the upcoming rate hike by Nigeria’s central bank will solve the crisis. Worse, while Dangote’s refinery is a good thing for Nigeria, reports are that it is buying oil from the US. WTI’s oil benchmark is usually cheaper than Nigeria’s Brent. 

The expectation was that the refinery would make Nigeria self-reliant and ease the demand of the dollar. That’s because Nigeria’s oil import is the biggest cause of dollar demand in the country.