PPC sees profit rocketing amid strong cash flow

PPC says it expects net profit attributable to shareholders to skyrocket as much as 200% in the six months ended September 2017.

Group earnings before interest, tax, depreciation and amortisation (ebitda) are expected to rise 3%-6%, compared with the same period a year ago amid a looming bidding war for the cement maker’s assets.

“Ebitda has been negatively impacted by costs related to corporate action, legal costs and exchange rate fluctuations,” the group said in a trading update on Tuesday. It said excluding “these impacts”, ebitda would have risen a further 5%-10%.

PPC said net debt levels remained in line with the operating update released in September and it remained adequately capitalised to meet its debt repayment obligations.

“Furthermore, debt restructuring negotiations with the funders both in respect of South African debt and the [Democratic Republic of Congo] funding agreements are progressing well,” it said.

The group’s ability to generate strong cash flows was shown by cash and cash equivalents rising by between 50% and 60% from the previous period. Basic earnings per share are expected to rise 45%-60%, with headline earnings per share expected to rise by between 30% and 40%, or between 18c and 20c a share.

“The increase in net profit seems high, but it is a result of a base effect from heightened finance costs in the prior period,” Gari Chigwedere, Africa cement analyst at Avior Capital Markets, said on Tuesday.

“We would not expect a material impact to valuations as investors should have factored in a normalised earnings outlook,” Chigwedere said.

The trading update comes as PPC and at least 25% of the group’s bigger shareholders rejected a joint conditional partial offer from unlisted South African cement rival AfriSam and Canada’s Fairfax Africa Investments, saying it significantly undervalued PPC.

They say the group is worth between R8 to well north of R10 per share, if a control premium is added. “Assuming fair value is around R10/share, control premiums are typically 25% to 35% above the fair value,” Sam Sithole, CEO of Value Capital Partners, the holder of about 5% of PPC stock, said.