Key message: EBITDA margins remain under 20% due to high cost inflation. ITAC tariffs on imported cement and clinker are still likely, in our opinion, and would boost our valuation by over 100c.

  • PPC released 1H FY22 results. HEPS increased to 55c (from 30c) on a revenue and EBITDA increase of 20% and 13% respectively. Hyperinflation accounting again distorted the result – normalised HEPS was 20c (from 17c).
  • Cost pressure was a feature of the result, with cost of sales up 9% (excl Zimbabwe). However, cost per ton in South Africa & Botswana declined by 1% as capacity utilisation increased (operational gearing) and cost reduction helped.
  • With cost inflation looking to continue to be high (distribution and energy inflation) price increases of 7-10% are probably required in the next year (in the absence of significant volume growth to benefit from operational gearing) as the cost reduction process is largely over.
  • Cement South Africa and Botswana: revenue up 17% as volumes increased by 12% (+5% relative to 1H FY20). EBITDA increased by 53% at a 18.7% margin.
  • Zimbabwe: revenue up 55% and volumes up 19% and prices increased to offset local inflation. EBITDA fell 12% as margins fell to 23.2% (off an inflated base and impacted by clinker imports and an unplanned shutdown). US$ dividends are being declared and paid (US$7m paid in the last six months). The region remains financially self-sufficient.
  • Rwanda: revenue down 18% as volumes declined by 4-6%. EBITDA fell 27% at a margin of 28.4% as large public projects were completed.
  • The application to ITAC for tariffs on imported cement and clinker will have a significant positive impact on the local market. The local producers would gain back at least 8% of the market and the increased capacity utilisation as a result should push EBITDA margins well over 20% (and reduce required price increases to recover costs).
  • However, the process has been tortuously slow and is not guaranteed. Our Target Price in the absence of tariffs is R5.14. Should tariffs be implemented our Target Price increases to R6.38. We assume dividends will resume in FY23.
  • PPC is looking at a number of projects to reduce its carbon footprint, including new extender sources and burning waste instead of coal.

Download full report