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Pretoria - The Pretoria Portland Cement (PPC) share is no sprinter.
According to Sanlam Private Investments' Oloff Bergh, an investor in PPC should not expect big returns in a hurry, but rather stable performance in the longer term with healthy dividends.
If you already own shares in PPC, hold them, said Bergh.
When PPC announced its interim results last week it said demand for cement in South Africa and Botswana had declined 15% in the six months to March 31, compared with the previous corresponding period. In all areas, including Zimbabwe, it had fallen 8%. In fact, the group expected demand for the full calendar year to be less than in 2009.
Reasons given are the collapse of the residential building market and holdups in the government's housing and infrastructure programmes.
The entire cement industry is currently working at about 75% capacity, said PPC. That, said Bergh, is not necessarily a problem, because a cement plant does not cost much when idle, and capacity is not lost.
In the period under review the way in which the industry has determined cement prices has undergone change.
While other producers previously simply followed when PPC adjusted its prices, they have now left theirs unchanged, said Bergh.
As a result PPC has lost market share to Lafarge and AfriSam.
PPC's management is however convinced that these lower prices are not sustainable and that the group will win back its market share.
Bergh considered PPC three times more sensitive to price fluctuations than to lower volumes, and its strategy to maintain profit levels therefore makes sense.
In the short term the cement industry is going through fairly rough times and PPC's management said the company is focusing on managing costs and efficiently turning its various plants to account. It is also planning expansion into other African countries.
The economic revival and recovery in the housing market eventually have to come.
The necessity for new infrastructure will soon oblige government to push forward its expenditure programme.
Bergh said PPC's fundamental position is solid. With its current 30% market share it is the leader in the highly consolidated cement market, to which costs of entry are steep.
PPC's profit margins are relatively high, it has a strong geographic presence and little debt. It is moreover big enough to manage the massive amounts necessary to enlarge future production capacity, even in difficult market conditions.
Over the past year its share price has lifted 11% to 3 255c.
It fell back slightly last week and at under 3 000c one could consider buying the share, said Bergh. For investors who now want to invest in construction shares, Bergh recommends Basil Read or Aveng.
- Sake24.com
