BROKERS’ NOTES: Buy PPC, sell Libstar

Sven Forssman, head of equity sales at Kela Securities

BUY: PPC

Punters in India and the US have been pushing cement stocks for over a month. They’ve been tipping them as the stocks to hold in 2023. The recent earthquake in Turkey and the rebuilding effort in Ukraine will create global demand too. So, we recommend long PPC.

First, PPC is seeking import tariff protection from the government against low-cost imports. Second, PPC is struggling with production costs from inflation and rising interest rates, which will linger for the next year.

PPC has reduced overall gross group debt to R1.43bn and net group debt to R677m. Infrastructure spend is happening and we expect South Africa to partly follow the trend offshore.

Low-end demand is strong, and PPC agrees with our view that Calgro M3 is experiencing strong demand at the low end of the market. Calgro M3 builds houses in the R450,000-R650,000 range. Tariff protection would see a tick up of at least 10% in demand from PPC’s cement plants. In addition, share buybacks currently look attractive to us.

SELL: Libstar

We like Libstar in the medium term but think the ongoing load-shedding will restrict the company’s progress.

Libstar is attractive and has been for a while; it has been trading below its listing price for many years and lacks catalysts to rerate. A site visit to its Cape Town premises late last year gave us confidence that it’s a high-growth frozen food operation. The company targets segments in a total market worth more than R20bn.

However, reliable electricity supply is the big challenge for food manufacturers like Libstar. It has its own generators, which run at three times the price of grid-supplied electricity; it costs Libstar about R200,000 a day to run them.