Our opinion on the current state of PPC

PPC is a leading manufacturer and supplier of cement, aggregates, ready-mix, lime, limestone, and fly-ash in Africa. It has eleven cement factories in South Africa, Botswana, the DRC, Zimbabwe, Rwanda, and Ethiopia with a total production capacity of 11,5 million tons. It produces aggregates at its Mooiplaas quarry in Gauteng which is the largest aggregates producer in South Africa. It has twenty-six batching plants for ready-mix in South Africa and Mozambique. Importantly, the company has managed to re-negotiate its lending so that it no longer requires a highly dilutive rights issue. No dividends have been paid for the last five years. The carbon tax which came into effect on 1st June 2019 costs PPC between R100m and R120m which it intends to pass on to consumers. This will make its pricing less competitive against foreign imports unless tariffs can be increased. PPC is basing its hopes on growth from the rest of Africa. In our view, PPC has been suffering together with the entire construction industry from the lack of new government and quasi-government projects in South Africa. It has been compensating by cutting costs and investing in the rest of Africa, but we regard the cement industry as over-supplied currently, and therefore difficult to manage. The company has also been benefiting from the government's new "localisation" policy in terms of which government operations have to buy locally produced cement. In its results for the six months to 30th September 2023 the company reported revenue up 20,9% and headline earnings per share (HEPS) of 26c compared with a loss of 5c in the previous period. The company said, "Increased demand is required to enable us to more effectively utilise the capacity available in our primary market. PPC Zimbabwe saw a strong recovery across all key metrics when compared to the negative impact of the planned shutdown in the prior comparative period". Technically, the share was in a downward trend since its high of 568c in October 2021 and we advised waiting for a clear break up through a 65-day moving average which happened on 2-11-2022 at a price of 241c. Since then the share has moved sideways and upwards, but remains volatile. The recent results have pushed the share price up sharply. The company is conducting a R200m share buy-back and has reduced its debt by 20%. On 26th January 2022, the company reported that the CEO and another director had sold about R240.5m worth of shares which took the share price down sharply - but is not necessarily thought to be negative.