Our opinion on the current state of PPC

PPC is a leading manufacturer and supplier of cement, aggregates, ready-mix, lime, limestone, and fly-ash in Africa. It has eleven cement factories in South Africa, Botswana, the DRC, Zimbabwe, Rwanda, and Ethiopia with a total production capacity of 11,5 million tons. It produces aggregates at its Mooiplaas quarry in Gauteng which is the largest aggregates producer in South Africa. It has twenty-six batching plants for ready-mix in South Africa and Mozambique. Importantly, the company has managed to re-negotiate its lending so that it no longer requires a highly dilutive rights issue. No dividends have been paid for the last five years. The carbon tax which came into effect on 1st June 2019 costs PPC between R100m and R120m which it intends to pass on to consumers. This will make its pricing less competitive against foreign imports unless tariffs can be increased. PPC is basing its hopes on growth from the rest of Africa. In our view, PPC has been suffering together with the entire construction industry from the lack of new government and quasi-government projects in South Africa. It has been compensating by cutting costs and investing in the rest of Africa, but we regard the cement industry as over-supplied currently, and therefore difficult to manage. The company has also been benefiting from the government's new "localisation" policy in terms of which government operations have to buy locally produced cement. In its results for the year to 31st March 2023 the company reported revenue slightly up at R9,9bn and a headline loss per share of 8c compared with a loss of 3c in the previous year. The company said, "Impairments of R145 million (March 2022: R38 million) were taken during the year under review, the largest item being R84 million. This related to an impairment at group of a portion of the premium paid on the acquisition of CIMERWA". In an operating update for the five months to 31st August 2023 the company reported revenue in South Africa and Botswana up 5%. The company said, "The average selling price increased by 10% during the period under review as bi-annual increases were implemented in January and July 2023. Notwithstanding the lower volumes, this resulted in revenue growth of 5%". In a trading statement for the six months to 30th September 2023 the company estimated that headline earnings per share (HEPS) would be between 25,5c and 26,5c compared with a loss of 6c in the previous period. The company said, "This difference is primarily due to the current period EPS and HEPS numbers being impacted by a strong performance by PPC Zimbabwe in the current period compared to the prior period". Technically, the share had been on a downward trend since its high of 568c in October 2021 and we advised waiting for a clear break up through a 65-day moving average which happened on 2-11-2022 at a price of 241c. Since then the share has moved sideways and upwards, but remains volatile. The company is conducting a R200m share buy-back and has reduced its debt by 20%. On 26th January 2022, the company reported that the CEO and another director had sold about R240.5m worth of shares which took the share price down sharply - but is not necessarily thought to be negative.