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.

Finweek English Edition - - MARKETPLACE - Editorial@fin­ has been rated as one of the top 5 tech­ni­cal an­a­lysts in South Africa. She has been a tech­ni­cal an­a­lyst for 10 years, work­ing for BJM, Noah Fi­nan­cial In­no­va­tion and for Stan­dard Bank as part of the Re­search Team in the Trea­sury Div

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.

What next?

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.

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