Concrete ambition PPC’s new vision is to “more than double its business” every 10 years, and the group is looking to become a major player in Africa.
local cement producer PPC (Pretoria Portland Cement) seems to have put its boardroom squabbles, which led to the high-profile departure of CEO Ketso Gordhan late in 2014, behind it. However, its share price performance has continued to lag the FTSE/JSE All Share Index, along with the JSE’s Construction Materials Index, which is down nearly 50% over the past five years.
The sector has been hit in part by slower-than-expected government infrastructure spending, as well as increased competition, including from imports. PPC said its group cement sales volumes were down 1% for the first five months of the 2016 financial year, driven in part by a 3% decline in volumes in its key international businesses. There has also been significant pressure on selling prices in most regions, with declines of 5% recorded in the South African cement business, it said.
PPC has operations in South Africa, Zimbabwe and Botswana, and commissioned a new operation in Rwanda last year. Its new operations in the Democratic Republic of the Congo (DRC) and Ethiopia are expected to be commissioned by the end of the year and the second quarter of 2017 respectively. In all, PPC plans to increase its capacity by nearly 50% from 8.6m tons in 2015 to 12.7m tons in 2018. The group’s new vision is to “more than double” its business, which focuses on providing materials and solutions into the basic services sector, every 10 years, CEO Darryll Castle said at the Merrill Lynch conference in Sun City in March. The group has a very high exposure to cement revenue relative to other global cement players, with cement contributing 79% to its overall revenues in 2015. This compares with 66.5% for Lafarge and 58.3% for Holcim (both based on 2014 numbers), PPC said. The plan is therefore to expand its product and service offering through materials and solutions, and the diversification of its product mix, Castle said. It wants to become a major player in Africa, where it sees substantial future growth potential. Based on statistics from the Mo Ibrahim Foundation, PPC says Africa will have to accommodate another 900m or so new urban dwellers in the next 35 years, equivalent to what the US, Europe and Japan combined have done in the last 265 years. The continent is expected to host nearly a quarter of the global urban population by 2050, according to the foundation’s projections.
However, PPC is not the only player spotting the opportunity for cement sales on the continent. Major competitors include German multinational building materials group HeidelbergCement, the world’s second-largest cement supplier; Nigeria’s Dangote Cement; and Mamba Cement, in which Chinese cement producer Jidong Development Group holds a 51% stake.
Despite the challenges, PPC shares currently look attractive with a price-to-earnings ratio (P/E) of 10.4 (compared with the JSE All Share Index’s much pricier P/E of 21.15 times), a market capitalisation of R9bn and a dividend yield of 3.2. It has fallen from highs last tested in 2007 at 5 200c/share and is currently trading at recoverable levels.
Possible scenario: PPC has been consolidating for the past seven months. An inverted head-andshoulders pattern is potentially in the making – a positive breakout would be confirmed above 1 550c/ share. Above 1 645c/share the ascending phase of a bottomingup pattern would commence, with first target situated at 2 295c/ share. Investors should stay long above 2 295c/share on continued upside. Alternative scenario: A reversal below 1 285c/share would extend current medium-term consolidation. PPC would return to its previous bear trend below 1 120c/share.