Elephants and Ebitda – Moneyweb

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Welcome to the Supernatural Stocks podcast on Moneyweb, with your host The Finance Ghost – your weekly fix of local and international insights for investors and traders.

Turnarounds tend to capture our attention. Perhaps there’s some kind of emotional tie involved, as we really want to see a household name pull itself from the brink of disaster.

On top of that, there’s the obvious financial incentive: if you time it correctly, a turnaround can be one of the best investments you make. And for those who were unfortunate enough to be invested before things went wrong, a turnaround offers hope for a recovery.

When assessing a turnaround, you need to figure out why the company failed in the first place.

Are there problems that can be fixed, or do the issues run so deep that there is little hope of saving the place?

An understanding of internal versus external factors is helpful here. Internal factors can be changed through management initiatives and strategies, while external factors are, by their very nature, outside of the direct control of management.

Although a great management team can still find ways to mitigate the pain, even the best executives cannot save a sinking ship in a violent storm.

There’s a tremendous quote from Warren Buffett on this topic: “When management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”

Sound advice, as always, from the Oracle of Omaha.

Businesses do sometimes go to zero – even large, listed ones. And at times, they take good management teams down with them. Tongaat Hulett is a good example of a business that has zeroed.

Although internal issues arguably triggered the disaster, leading to allegations of fraud and related court cases, we can’t ignore the fact that external issues in the sugar industry have played a role in everything falling over.

In other cases, the external issues are problematic, but not terminal.

PPC is a lovely example, with the cement company having to navigate a market where growth is extremely hard to come by.

Despite this, the share price is up 274% over five years. If you bought this turnaround story, you’re smiling all the way to the bank.

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But if you’ve been a shareholder for the past decade, you’ve lost roughly a third of your money. When a company falls into the “turnaround” bucket, it’s often because longer-term holders are unfortunately deep in the red.

With PPC having just hosted a Capital Markets Day, it’s worth digging into the progress in that story.

Elephants … many, many elephants

It feels like every known stock image of elephants was considered for this presentation. PPC’s brand is built around elephants and believe me, you’ll know about it in the Capital Markets Day deck.

Africa’s strongest animal is a powerful image. The brand association makes perfect sense for an African cement business.

And when you add on the clever narrative around “awakening the giant” in this turnaround, it gets even better. Here are some other catch phrases that they use: “Rebuilding an icon” and “Redefining the future”.

You’ve got to hand it to the team at PPC – they know how to put some exciting PR behind their strategy.

Never, ever, underestimate the value of storytelling in an equity turnaround.

Of course, no amount of corporate fluff helps you if the numbers are weak. PPC has pulled off a remarkable financial recovery.

Alongside the numbers, they’ve taken an approach to investor relations that the market appreciates, with an early slide in the presentation promising “straight talk” and a “candid” approach.

Getting their house in order

Although the South African economic picture is much better now than before, with investors putting pressure on corporate teams to bring capital home rather than send it away, the situation isn’t quite so rosy in areas like infrastructure investment.

It’s still cold outside in South Africa. It’s still really hard.

PPC has been struggling in a tepid South African market. Where growth opportunities emerge, imported alternatives are never far away.

Across so many products, South Africa is a favourite dumping ground for cheap imports from other emerging markets. PPC’s business faces the same issue being faced by so many others, ranging from Italtile (in tiles, obviously) through to RCL Foods (in sugar).

In the slide deck, you’ll find this statement: “PPC’s opportunities are internal” – in other words, they are having to deliver better results despite a weak external market. If you can’t rely on growth in volumes and market prices, then you have to unlock cost efficiencies in areas like coal and electricity consumption.

From a culture perspective, this drives a focus on cost discipline. For investors, that’s usually a good thing.

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Listen/read:

PPC delivers strong growth as turnaround gains traction
PPC firms as it reports progress on turnaround strategy

One of the benefits of investing in a successful turnaround is that you tend to put your money behind a management team that understands the importance of shareholder returns, not just vanity metrics like revenue or market share for the sake of it.

You’ll see plenty of commentary in the PPC slides on topics like capital allocation and optimising return on investment [ROI].

Other concepts that come through include quality revenue, disciplined pricing and finding the right customer base and product mix. Again, when things are difficult out there, you’re in an optimisation mindset rather than a growth mindset.

If the growth then comes, the company is in an exceptional position to address it. This is part of the bull case and upside optionality at a company like PPC.

Clawing its way back

Let’s not pretend otherwise: a turnaround was desperately needed. Things were bad at PPC.

From FY17 to FY23, the compound annual growth rate [CAGR] in earnings before interest, tax, depreciation and amortisation [Ebitda] was -10%. From peak to trough, Ebitda fell by 47%!

It wasn’t clear during the pandemic that PPC was going to emerge in one piece, with the banks firmly at the door and management focusing on negotiating funding packages and covenants that would give them the breathing room to just keep going.

Elephants and Ebitda: PPC’s turnaround narrative

Thankfully, things have been much better in the past couple of years. Ebitda for the 10 months year-to-date in FY26 is 48% higher than in FY24. That’s an extraordinary outcome.

They are also higher than they were in FY17, at long last. Sure, there’s nearly a decade of inflation in there, but the headwinds faced by PPC over that period far outweigh any benefits of inflation.

In fact, when demand is so weak, inflation works against you as it creates cost pressures and hurts your margins.

Zimbabwe playing a major role

This isn’t just a South African story. Far from it, actually.

PPC Zimbabwe is a business built around US dollar revenue, with over 90% of cement sales in hard currency. With major changes made to reporting lines and structures, management has far more visibility over this business than before.

Read: PPC: Why is it so expensive to produce cement in SA?

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Here’s a statistic that tells the story best:

PPC Zimbabwe has paid $49 million in dividends in the past two years compared with $33 million in the prior 10 years. That is incredible, let’s face it.

The “lost decade” issues at PPC could be found in both South Africa and Zimbabwe.

But times have certainly changed, with PPC’s group return on invested capital jumping from just 6.5% in FY24 to 13.4% for the first half of 2026 – that is more than double!

If Zimbabwe wasn’t doing as well as it is now, that wouldn’t have happened.

Looking ahead

A few years ago, many people believed that PPC was going to hit the concrete wall rather than build it.

Today, PPC talks about being cash positive in both South Africa and Zimbabwe. Perhaps most impressively, they note that capital can be raised for investment in the South African business.

This couldn’t be more different to the position during the pandemic, when all we were reading about was covenants and assets used for bank security. The focus will now shift from survival and stabilisation through to capital allocation and growth.

This is a different set of risks and opportunities.

For investors, the hope is that PPC will make this transition without losing sight of the hard lessons learnt in the past few years.

They are still carrying fresh scars on their back, so I doubt strongly that we will see unjustifiable risk-taking by this management team.

Instead, the Capital Markets Day promises a focus on Ebitda margin and an important step-change in FY28 based on the new RK3 plant in the Western Cape.

As turnarounds go, this has been one of the best ones.

Read: PPC to build R3bn state-of-the-art cement plant in Western Cape

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