Key message: A resumption of dividend payments is a positive with cement demand at a cyclical low. New management is making changes.
- PPC released FY24 results. Continuing HEPS moved back to profitability at 19c on a 21% and 39% increase in revenue and EBITDA respectively. A dividend was declared of 13.7c – effectively the pass through of the Zimbabwean dividend of US$11m. A special dividend will be paid later (60-70% of the R783m Cimerwa proceeds).
- Cement South Africa and Botswana: Sales volumes down 5.8% and prices up approx. 10%. Revenue increased 5% and the EBITDA margin fell to 11.3% (from 11.7%). Coastal demand weak due to weather and delays in large projects and inland market remains very competitive. The market has weakened in 4Q FY24 with competitors not following price increases in January and demand weak pre-elections.
- Zimbabwe: Sales recovered well (+37% with) after the extended kiln shutdown. A strong first half (strong local demand and restricted imports) was followed by a more normal 2H (slowing demand and imports allowed due to local cement shortage as competitors have operational problems). The 2H EBITDA margin fell to 15.3% due to higher electricity costs (+76% from Oct 23) and the continued high cost of imported clinker (from PPC’s SA operations and Zambia). Dividends of US$4m and US$7m were paid in July and November 2023.
- Rwanda: The sale of the 51% in Cimerwa for US$42.5m (approx. 3.2 times EBITDA multiple) has been completed with cash being received in South Africa. Net cash receipts were R783m.
- Materials: A decline in volumes in readymix and aggregates resulted in an EBITDA loss of R12m (adjusting for a R55m once-off non-cash item). The fly ash business is doing well.
- The year was characterised by a strong 1H, particularly in Zimbabwe, followed by a subdued 2H. The new management is doing an intensive review of the business and aims to improve efficiencies, product mix and operational performance to counter the weak market. The benefits are expected from FY26.
- FY25 earnings are likely to be similar to annualised 2H FY24 numbers, indicating a decline in HEPS in the absence of a volume recovery. Future earnings are highly geared to volumes, with PPC able to maintain financial viability even in the current weak market. We reduce our Target Price to R4.50 (from R5.00) with a local market recovery pushed into FY26 along with internal improvements.