Analyst recommendation

                                                                                                           As at 02 March 2023

Executive Summary

Management’s shake-up with the new group CEO Matias Cardarelli has strengthened the Executive Committee
(Exco) with several new roles to improve the profitability and sustainable return on capital in South Africa.
• International businesses were resilient but South Africa and Botswana are experiencing challenges in a competitive
market.
• Successful disposal of the company’s 51% stake in CIMERWA (Rwanda) for $42.5 million as of 25 January 2024.
• Increase in revenue due to bi-annual increases of 8.8%, but cost pressures persist.
• Strong cash generation supportive of balance sheet.
• The share repurchase programme reached R200 million approved level.
• Outlook:
a. PPC will focus its resources on Southern Africa.
b. Operational efficiencies and cost containment measures have been identified.
c. They will continue to implement bi-annual price increases to achieve margin recovery.
d. The group intends to prioritise returning cash to shareholders: dividends or share repurchase program.
e. We await more developments from the new management team before reviewing our thinking on this business, given how challenging and competitive the environment is.

Analyst thesis

South Africa and Botswana: Play mainly in the premium cement segment and are market leaders.
a. Price increases have been lower than required (below inflation) due to competitive pressure from imports (SA
over supply and competition).
b. Margin pressure as input cost (cost inflation) remains high.
c. Deleveraged balance sheet, not only in the South African segment but at group level as well.
d. The real opportunity lies in government intervention: government spend (infrastructure plan), import tariffs and
SOE performance.
• International: operate in Zimbabwe.
a. The company switched to hard currency; the dollar cleans up reporting with no more hyper-inflation items.
i. Supply and demand dynamics more supportive of price increases and growth.
ii. The group faced import issues in Namibia, however, it is marginal in the segment context.
PPC
Materials
Company Update Report
Hold
Company Update Report 2
iii. A net export to international markets in Zimbabwe cash repatriation, are favourable.
iv. They paid $4 million in dividends.
b. Rwanda (CIMERWA) owns 51% of the business.
i. Successfully concludes the agreement to dispose 51% of its shareholding. Purchaser: $42.5 Million
ii. Purchased by one of largest manufacturers of clinker and cement in East Africa with Operations in Kenya and
Uganda.
iii. Book value reported to $38.5 (R275.2 m). Gain on sale of asset.
• Valuation
a. We value the company on a discounted cash flow basis because of dividends received in international
business.
b. High discount rate due to inflationary pressure in Zimbabwe and uncertainty supply demand dynamics in the
cement industry.
c. Continued cost management and maintenance of margins.
d. Upside is 3% and we recommend a hold.

Results

Table 1: Results summary

Valuation

Table 3: Valuation

Table 3: Valuation multiples

Source: FactSet