Investment Idea: PPC

PPC’s largest segment is South Africa and Botswana:
a) Price increases should continue to help improve margins.
b) Increased construction from lower interest rates, improvement in infrastructure and thematic themes such as urbanisation could potentially help with industry growth. Volumes could also further benefit from expansion projects such as the R3 billion cement plan in the Western Cape. Thanks to its premium cement, the company can safeguard its market share against competitors offering lower-quality products, especially where quality is a priority for customers.
c) However, volumes are going to remain under pressure as competition remains high and exacerbated by price increases.
d) The real opportunity lies in government intervention: government spend (infrastructure plan), import tariffs and SOE performance.
International (Zimbabwe): The company switched to hard currency; the dollar cleans up reporting with no more hyper-inflation items.

Our valuation has an upside of 6% which supports our hold view. We value the company on a discounted cash flow basis which takes into account dividends received in international business. A high discount rate was applied due to inflationary pressure in Zimbabwe and uncertainty relating to supply demand dynamics in the cement industry.