Key message: Impressive EBITDA expansion continues with the new RK3 plant due to boost margins even further.
- PPC released FY26 results. HEPS increased by 25% to 50c on a 3.9% and 67% increase in revenue and EBITDA respectively. Adjusted for unrealised foreign exchange losses on the hedge for the new RK3 plant pro forma HEPS increased 45% to 58c.
- Key takeaways from the result: PPC has continued its impressive margin improvements in a cement market that is still largely stagnant. The improvement in returns and operational efficiency has been remarkable over the past two years, and management believe that there are still more gains to be had. Key features of the improvement have been getting the right people into key positions and reducing logistics costs.
- The impact of the new R3.1bn RK3 kiln in the W Cape will be significant due to the approx. 30% savings in fixed and variable costs. The project is on track to be commissioned in December 2026 with first clinker produced in 1Q CY27. The new RK3 plant could boost SA & Botswana EBITDA margins by at least 5%, in our opinion. The plant will be able to increase the geographic footprint into the E and N Cape.
- Zimbabwe continues to perform well with the market growing and an attractive projects pipeline. Clinker production increased by 4% through internal opportunities and further upside is expected. Management have started to look at a new kiln in Zimbabwe to replace the old Colleen Bawn operation – this may be positioned in the north of the country where PPC has mining rights. Cash conversion has improved significantly with US$36m paid out in FY26.
- While 1H FY27 may be flattish due to planned shutdowns, we expect PPC to see a step change in earnings in FY28 when the RK3 kiln is full operation. Group margins are expected to be boosted by at least 2-3% in FY28 and FY29. Dividend payments should continue to be supported by dividends from Zimbabwe and local earnings post the RK3 capex completion.
- We roll our valuation to FY28 and increase our FY27 and FY28 HEPS forecasts by 8% and 3% respectively. We increase our Target Price to R8.20 (from R7.10). PPC is well positioned to benefit from any increase in cement demand with ample spare capacity available at little extra cost.