Key message: Price increases look to catch up to cost inflation in FY24, with steady dividends expected from Zimbabwe and Rwanda.
- PPC released FY23 results, with revenue up by 0.2% but the EBITDA margin fell to 13.7% (from 15.1%). A R200m distribution (share buyback) has been approved with the SA obligor group (which includes dividends received from Zimbabwe and Rwanda) able to maintain within leverage targets.
- Finance costs declined by 28% as de-gearing continues and interest rates fell after negotiating improved debt terms. Continuing HEPS fell to a loss of 8c. Non-cashflow items amounted to R434m.
- Cement South Africa and Botswana: Sales volumes down 6% and prices up 8%. Revenue increased 1.7% but the EBITDA margin fell to 11.7% (from 14.5%). Cost inflation was high, with high coal costs being the major culprit (distribution costs up 9.7%, variable production costs up 13.7%). Fixed costs declined 1.4%.
- Retail sales continue to be negatively affected by the weak consumer environment and bulk cement demand remains low as overall infrastructure spend continues to disappoint. Imports fell 34%. Price increases will be implemented in July 2023 (for retail and bulk) and with cost inflation slowing down we believe that margins have now bottomed. We forecast a 2% recovery in EBITDA margins in FY24.
- Zimbabwe: Sales volumes down 16% due to the kiln shutdown in 1H. Revenue declined 6.4% in USD (USD sales are effectively the functional currency). 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 1% due to public infrastructure spend, general construction and exports to DRC. Regional competition has increased. Rwanda paid a maiden dividend of USD4.3m (approx. USD5m per annum expected gong forward).
- Materials: Sales volumes declined in line with the cement market, with fixed costs too high and a restructuring underway.
- We expect a return to profitability in FY24 as price increases finally catch up to cost inflation and non-cash items decline. We adjust our Target Price to R3.70 (from R3.80).