Key message: A bold defensive move to build a new 1.5mtpa integrated cement plant in the W Cape to retain control of the region.
- PPC held a Capital Markets Day. Along with the Trading Update released earlier in the month PPC is showing a more commercial focus with simplification of the organisational structure, realignment of culture and cost discipline. The new management team is reacting constructively to the weak cement demand conditions by focusing on controllable variables while investing for the future.
- The progress being made is evident in the Trading Update – with plant sourcing optimisation, sales product mix enhancement, improved energy costs and logistics management. The group EBITDA margin for the 10 months to 31 January 2025 has increased by 3.2% to 16.6% – a very good result in the current cement market with EBITDA increasing by 20% despite revenue declining 3%.
- Capex for the year is expected to be in the region of R400-450m. Cash generation has been strong with the SA & Botswana group is in a net cash position of R106m and Zimbabwe remains debt free. US$13m of dividends was paid from Zimbabwe (vs US$11m) due to improved free cashflow generation.
- SA & Botswana: sales volumes declined by 1% with flat SA sales. Price increases pushed revenue up 2% for the period. EBITDA increased 32% at a 14.8% margin (vs 11.4%) driven by a reduction in G&A expenses. The bulk of the operational improvement is still to come.
- Zimbabwe: volumes declined 9%, with an improvement in demand seen from January 2025. Revenue declined 12% but EBITDA increased by 6% with the margin growing to 26% (from 21.6%).
- Materials: EBITDA for the entire materials business improved significantly from the loss in the comparable period.
- PPC has announced a R3bn 1.5mtpa integrated cement plant in the Western Cape to replace existing old capacity. The new plant should reduce variable costs by 20-25%, fixed costs by 35% and carbon emissions by 30%. The R3bn cost will be funded by debt and cashflows from existing operations, with net debt: EBITDA expected to remain below the 2 times covenant level.
- With the improved margin performance outlined in the Trading Statement we increase our earnings forecast for FY25 and FY26 by 18% respectively. We increase our Target Price to R5.50 (from R4.70).