PPC – Overpriced but undervalued

PPC’s 1H24 performance was strong, driven purely by the international operations where both Rwanda and Zimbabwe achieved strong volume and revenue growth. The SA operations expectedly weighed on the overall result, but through good cost-cutting measures and restructuring, it was able to improve margins. This was at the expense of cement volumes, with the tough economic environment, increased imports and predatory pricing cited as reasons for the underperformance.
In this report, we show that although dumping cement is a systemic issue for the SA materials market, it can no longer be blamed for PPC’s strained results. We note the historical inverse relationship with imported cement volumes has ended, and in the high-interest-rate and high-inflation environment, PPC has priced itself out of the market. It cannot cut costs any further and will need to look to coal costs falling and the eventual incorporation of calcined clay (LC3) to improve margins.
Although the International segment outperformed, Zimbabwe’s growth came off a low base and, due to the sale of CIMERWA, the segment’s earnings could be more volatile. We note that the strong first half performance in Zimbabwe was aided by import licences being revoked and 1.2Mt competitor capacity offline, but with imports and competitors returning along with regular power cuts, the 2H24 performance could be muted.
Our outlook for PPC remains positive despite its many challenges. It stands to benefit most from a large increase in construction activity, where competitors reach full capacity and are unable to service the market. The effect would be similar to the Covid-19 home improvement boom. Until then, we expect volumes to remain constrained, with revenue and EBITDA growth being driven by Zimbabwe.