Our opinion on the current state of PPC

11月21日

PPC is a major producer of cement, aggregates, ready-mix, lime, limestone, and fly-ash in Africa, with a production capacity of 11.5 million tons across eleven cement factories in South Africa, Botswana, the DRC, Zimbabwe, Rwanda, and Ethiopia. It also operates the Mooiplaas quarry, the largest aggregates producer in South Africa, and has twenty-six batching plants in South Africa and Mozambique.

Key developments:

1. Financial Resilience: PPC has successfully re-negotiated its lending agreements, avoiding the need for a highly dilutive rights issue. However, it has not paid dividends for five years. It recently announced a special dividend of 33.5c per share following the sale of its 51% stake in Cimerwa, its Rwandan operation.

2. Carbon Tax Impact: The carbon tax introduced in 2019 costs PPC between R100m and R120m annually, potentially reducing its competitiveness against foreign imports unless tariffs are increased.

3. Geographic Diversification: PPC is focusing on growth in other African markets to offset challenges in the South African construction sector, which has suffered from a lack of government projects.

4. Government Support: PPC is benefiting from South Africa's "localisation" policy, mandating government projects to purchase locally produced cement.

5. Cost Management: In its results for the six months to 30th September 2024, PPC reported revenue down 4.2% but a modest improvement in HEPS to 22c from 20c in the previous period. The company attributed this to strong cost discipline and price growth despite lower sales volumes.

6. Debt Reduction: PPC has reduced its debt by 20% and conducted a R200m share buy-back program, bolstering its financial position.

Outlook: PPC's focus on cost control, debt reduction, and localisation policies should provide a buffer against industry challenges. The company is well-positioned to benefit from South Africa's government of national unity (GNU), which is expected to stimulate infrastructure projects, as well as from falling interest rates.

Technical Analysis: Since October 2022, PPC shares have been in an upward trend, driven by improved financial performance and investor confidence. This trend is expected to continue as the company capitalizes on local and regional growth opportunities. However, the over-supply in the cement industry remains a challenge.