Key message: FY21 will be a messy result, but underlying cement operations are experiencing strong demand with price increases holding. Expect margin guidance of +20% in the SA cement business.

  • PPC released a trading update for FY21. Group EPS is expected to be between 63-68c and HEPS a loss of 13-18c.
  • This is lower than our expectations. In trying to reconcile the result, the following impacted the numbers:
    • EBITDA is expected to increase 14-18%. This implies an EBITDA margin for the South African business around 15% (1H FY21 14.3%). The implied approx. 16% margin in 2H FY21 appears low – but the trading statement refers to significant restructuring costs. Sephaku had EBITDA margins above 20% in a similar period – PPC cannot be far behind excluding the one-off costs.
    • Hyperinflation accounting in Zimbabwe resulted in a R200m loss for FY21 – a significant turnaround from aR326m profit in 1H FY21.
    • PPC Lime, Botswana Aggregates and PPC Barnet DRC are classified as discontinued operations.
  • The FY21 reporting period is very messy and not reflective of current operating conditions. We do expect management to guide to +20% margins for the SA cement business in FY22 and retain our confidence in future forecasts (we had previously used an 18% EBITDA for FY22 and FY23 – this has been raised to 22%).
  • With the resolution of the DRC debt overhang PPC is well positioned to benefit from the continuing strong demand for cement and construction materials. The announced asset sales will bolster the balance sheet.
  • We increase our Target Price to R4.94 (from R4.37).

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