Key message: Evidence of PPC correcting management and corporate governance lapses are growing. Strong cement markets could significantly plug financial holes.

  • PPC has delayed its FY20 results again as additional financial errors have been found. PPC is repairing the damage done by previous management, primarily on the financial front. The Trading Statement for FY20 guides to a revenue and EBITDA decline of 5% and 16% respectively. HEPS is expected to be between 25-30c.
  • Cement sales at high levels: the striking number in the Trading Update is cement sales – double digit sales growth in June and July and 25% growth in August and September. This growth has been reported by Sephaku Cement as well.
  • Local cement sales benefitting from lack of imports: while demand has been strong due to some catch-up in construction projects, the reduction of imports since the Covid lockdowns has had a significant positive effect on local cement sales. Furthermore, financial challenges in the blender market has also reduced supply from that sector. Cash generation has been strong as a result.
  • African cement volumes also strong: cement sales in the DRC and Zimbabwe are up 25% in August and September 2020, and Rwanda up 10%.
  • Local bank term-sheets concluded: PPC has negotiated terms with local lenders to keep short- and long-term facilities in place, with a deferral of interest and capital repayments on long-term debt to March 2021. A waiver on debt covenants has also been agreed.
  • DRC debt standstill: terms have been agreed for a standstill to December 2020, with a possibility to extend this to March 2021. A long-term restructuring of this debt is in progress, with an effort to relieve PPC of its contingent liability. A capital raise in PPC International is part of this process.
  • Local capital raise a last resort: should all the above not be sufficient, PPC will consider a local rights offer. Given the strength in the cement market at present, this is not a given, in our opinion.
  • A very different company: PPC lost its way over previous years, with weak management and poor corporate governance. Indications are that much of this is being remedied. Government support for localisation remains a significant positive trigger, should this be adopted.

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