Rights Offer Avoidance

Key message: Apparent progress in the DRC debt restructuring and a boost to earnings from strong cement markets is reducing the probability of PPC having to raise cash to meet lender de-gearing requirements.

  • PPC released 1H FY21 results. Revenue and EBITDA increased by 1% and 15% respectively despite the Covid impact. Cost of sales declined by 4% and administration and other costs declined by 10% – cost containment measures had a positive impact. Fair value adjustments and currency and hyper-inflation accounting in Zimbabwe boosted operating profit (up 77%).
  • South Africa & Botswana: Cement sales increased by 20-25% in July-Sept, with strong growth continuing into December (+10-15%). Sales have been predominantly retail). EBITDA margins maintained.
  • PPC Barnet (DRC): Cement sales increased by 20-25% in July-Sept, with strong growth continuing into October (+25-30%). 1H FY21 growth was 8% (which includes the Covid-impacted period). EBITDA margins increased to 3% (from 26.7%).
  • PPC Zimbabwe: Cement sales increased by 35-40% in July-Sept, moderating into December (+5%). 1H FY21 growth was 5-10% (which includes the Covid-impacted period). EBITDA margins maintained.
  • Rwanda: Cement sales increased by 15-20% in July-Sept, with strong moderating into October (+25-30%). 1H FY21 growth was 10% (which includes the Covid-impacted period). EBITDA margins increased to 32% (from 30.4%).
  • Strong cement sales in South Africa continues, with PPC running its efficient capacity at 90% utilisation rates. The cement market is coming back into balance as supply struggled to match demand post the lockdown (producers ran down stocks and were surprised by the demand, followed by a transport strike impacting supply chains).
  • The restructuring and refinancing project is making positive progress, with resolution of the DRC debt restructuring expected before March 2021. Strong cement sales could help PPC reach de-gearing targets through internal cashflows and asset sales.
  • We roll our Target Price base year into FY22 and increase our Target Price to R2.94 (from R2.05).

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