Higher bid hopes drive PPC shares after AfriSam offer

08 September 2017

Expectations of a higher bid for South Africa’s biggest cement maker PPC kept its shares above the $713 million offer by rival AfriSam on Wednesday, with PPC examining two more bids.

AfriSam launched an all-share bid for PPC on Monday, valuing its rival at R5.75  per share, or about R9.2 billion  ($713 million).

“The offer price undervalues PPC. There is a good chance that based on the fundamentals of PPC alone, they (AfriSam) will have to up their offer,” Tinashe Kambadza, an analyst at Afrifocus Securities said.

“In addition, they are competing with these other bidders,” Kambadza added.

PPC has not named the two other bidders, but said the proposals were “credible and potentially value-enhancing for shareholders to merit careful consideration” and one included a cash component.

AfriSam’s proposed tie-up is its third attempt in three years, but it does not have the preliminary backing of the PPC board, with PPC’s chairman Peter Nelson saying it “fundamentally undervalues” the firm.

“I will not be surprised if we see a bidding war break out over the next few weeks,” said Gryphon Asset Management’s equity analyst and portfolio manager Casparus Treurnicht.

“We might definitely see more action in the future and the market agrees,” Treurnicht added, with reference to shares in PPC which have have surged 3.54% over the past three sessions and were trading 1.64% higher at R6.18  at 1232 GMT, well above AfriSam’s proposed offer.

The share price movement is testing AfriSam and its backer, the African unit of Canada’s Fairfax Africa Holdings, determination to create an African giant with operations in six countries and enough financial firepower to take on regional rivals such as Nigeria’s Dangote Cement.

At R5.75  per share, AfriSam would be paying 24% less than what PPC should be trading at based on its most likely earnings growth trajectory, Thomson Reuters StarMine data shows.

StarMine’s intrinsic valuation model, which uses a blend of analysts estimates and its own models, rates PPC share price at around R7.55, based on an expected 5.4% five-year annual compounded growth rate. 

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