Key message: Weakening demand and market share wars have decimated margins. Planned price increases (12-15%) need to stick to recover cost increases.

  • PPC released 1H FY23 results, with revenue up by 9% (excl. Zimbabwe). Excl. Zimbabwe, costs increased by 11%. Hyperinflation in Zimbabwe caused a negative R206m net monetary impact.
  • Finance costs declined by 43% as de-gearing continues and interest rates fell after negotiating improved debt terms. HEPS fell to a loss of 3c (from 53c). Excl. Zimbabwe HEPS fell to 4c (from 10c).
  • Cement South Africa and Botswana: Sales volumes down 2.6% and prices up 5%. We forecast revenue to increase 11% for FY23 with the EBITDA margin decreasing to 11% (from 15.2%) as severe cost inflation is unlikely to be recovered through pricing alone.
  • Retail sales have weakened substantially, and we do not see a meaningful recovery in cement demand in the current economic environment. Price increases are the only lever for cement companies to recover margin lost to cost increases and volume declines.
  • PPC is looking to increase cement prices by 12-15% in January 2023. This is the minimum required just to recover cost inflation – this will not take EBITDA margins back to 20% yet (a volume recovery would be required for that).
  • Zimbabwe: Sales volumes down 13% due to the kiln shutdown. Volumes had recovered by 2Q. Prices increased by 12% over the period to recover input cost inflation. Management expects 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 11% due to public infrastructure spend, general construction and exports to DRC. Plant performance has improved.
  • Planned cement price increases will only take effect at the end of 2H and FY23 results will therefore remain subdued. A recovery into FY24 is forecast assuming the price increases stick.
  • We have used FY24 as the base year for our valuation as FY23 will be impacted by severe cost inflation, weaker volumes and lower than expected price increases. We adjust our Target Price to R3.87 (from R4.90). Our FY23 valuation is R2.85 (from R3.60).

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