Key message: Cost inflation will be difficult to recover through pricing, although key cost variables are likely to be volatile this year.

  • PPC released FY22 results, with revenue up by 11% (+5% excl. Zimbabwe). Costs increased by 19%, impacted by Zimbabwe (+85% with clinker imports required and hyperinflation accounting impacted depreciation). Excl. Zimbabwe, costs increased by 7%.
  • Cement South Africa and Botswana: Sales volumes flat (+5-9% on pre-Covid levels) and prices up 5%. We forecast revenue to increase 11% for FY23 with the EBITDA margin decreasing to 13% (from 15.2%) as severe cost inflation is unlikely to be recovered through pricing alone.
  • Competitor activity (AfriSam) is reverting to chasing volumes over price. PPC have warned they will defend their market share if necessary – we see this as more of a warning than potential action, but PPC management has become more visibly aggressive.  
  • Demand from the private sector remains good but public infrastructure spend is not yet evident. Cement demand has moderated from post-Covid lockdown DIY boom, with 2H revenue down 6.3% as a result (cement volumes down approx. 10% in 2H).
  • Zimbabwe: Sales volumes up 28% and prices approx. 5%. We forecast revenue to increase 9% for FY23 with the EBITDA margin increasing to 25% (from 18.1% – clinker imports increased costs by over R100m due to planned and unplanned kiln shutdowns). Management expect cash extraction of US$8-10m/yr from Zimbabwe with 50-60% of revenue generated in US$ being free funds for dividend payments.
  • Rwanda: Sales volumes up 20% and prices flat in local currency. We forecast revenue to increase 8% for FY23 with the EBITDA margin falling to 26% (from 28.2%).
  • The ITAC application for cement tariffs on imports seems to have stalled, with cement companies losing faith in government intervention and support. PPC management has warned it may revert to imports in the Western Cape and close cement plants – again more of a warning but signalling a more vocal stance towards government.
  • The outlook for FY23 is complicated by significant moves in key costs (distribution costs are 31% of total costs and 50% of this cost is fuel). Margins will be under pressure in 1H – but could recover in 2H if oil prices and the exchange rate moderate. Our Target Price in the absence of tariffs is R4.90 (from R5.45).

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