Key message: A remarkable operational turnaround has boosted EBITDA margins despite a weak cement market.
- PPC released FY25 results. HEPS increased 110% to 40c on a 1.9% decline in revenue and 28% increase in EBITDA. An ordinary divided on 17.6c was declared to add to the special dividend of 33.5c (65% of the proceeds of the Rwandan sale) declared in 1H FY25.
- Key takeaways from the results: PPC has executed a remarkable operational turnaround with strong growth on profitability despite the weak cement market. Cost discipline, logistics optimisation and a focus on core competencies have been key features of this turnaround.
- PPC is ruffling some feathers in the market in looking to disintermediate some middle-men in the distribution channels to customers – we believe that this is a positive step as retailers and buying groups were leveraging their size against cement producers.
- EBITDA multiples have improved substantially in the SA & Botswana division as a result of these interventions. Free cash flows were strong at R1049m (+306% on FY24) and the SA & Botswana group is in a net cash position.
- PPC has announced the construction of a new US$143m integrated plant in the Western Cape at the Riebeeck site. The new plant will replace existing W Cape operations (although one kiln at De Hoek will be kept as a swing producer if required). This move is partly defensive to keep any other producers from looking to expand into the W Cape and partly to replace ageing assets.
- The new plant will be funded through debt (approx. R1.5bn) and cash flows. The net debt:EBITDA covenant will be increased to 2.5 times over the peak funding period of FY27 – but we do not expect PPC to exceed the 2 times level.
- PPC has signed a strategic cooperation agreement with Sinoma to improve efficiencies and review capital expenditure. We believe that the margin improvements are sustainable and further margin growth is possible on any demand recovery inn the cement market.
- We increase our Target Price to R5.60 (from R4.70). PPC retains the strongest brand equity in the market with the Surebuild product and is looking to take more control over its marketing and distribution channels.