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The funds most exposed to Sasol

Are having a bumpy ride.
Sasol’s Sandton head office. The drop in the oil price has raised concerns the group may have to come to the market with a rights offer in order to fund its $8bn debt. Image: Supplied

In June 2014 Sasol’s share price peaked at over R640. In the nearly six years since then, it has fallen over 85%.

This is a remarkable decline for one of the JSE’s biggest companies. Five years ago it was the sixth largest stock in the FTSE/JSE Top 40. Today, it is no longer even in the top 20. Its market capitalisation is now smaller than Old Mutual’s.

The company’s share price has been under pressure for some time due to operational concerns, particularly with regards to the Lake Charles Chemical Plant in the US. Sasol’s interim results revealed earnings per share that were 74% lower for the six months to the end of December 2019.

Read: More bad news for giant Lake Charles Chemical Plant

This week the bad news for the company was compounded by the sharp drop in the oil price. Brent crude prices were off over 30% in the past few days as Saudi Arabia effectively declared a price war in the face of falling demand.

On Monday, Sasol’s share price almost halved.

This decline has now even raised concerns that the company may have to come to the market with a rights offer in order to fund its $8 billion debt. This would place additional pressure on the share price.

Exposure

These developments have had a meaningful impact on unit trusts and exchange-traded funds (ETFs) that include Sasol in their portfolios. The counter remains one of the most widely held stocks on the JSE by local fund managers, so it will be a big drag on the performance many portfolios.

The biggest exposures to the stock are in South African resources funds. As the table below shows, these unit trusts have as much as 10% of their portfolios in Sasol.

Resource sector funds exposed to Sasol
Fund Weighting
SIM Resources Fund 11.04%
Coronation Resources Fund 9.70%
Satrix Resi ETF 9.25%
Nedgroup Investments Mining & Resources Fund 8.95%
Investec Commodity Fund 7.94%

Source: Morningstar (as at 31/12/2019)

In the year to date, these funds are down between 10% and 20% as resource stocks more broadly have also not been spared in the market sell-off. Over a one-year period, however, their returns are still positive as they have benefitted from the surging share prices of the big diversified mining companies and platinum stocks in particular.

Sasol does, however, also make up a meaningful part of the portfolios of general equity funds. The table below shows the funds with the highest weighting in the stock.

 

Funds exposed to Sasol
Fund Weighting
NewFunds Shari’ah Top 40 ETF 7.43%
Counterpoint SCI Value Fund* 7.40%
Mazi Asset Management Prime Equity Fund 7.04%
Integrity Equity Prescient Fund 6.91%
Saffron SCI Large Cap Fund 6.32%
Fedgroup General Equity Fund 6.27%
Nedgroup Investments Mining & Resources Fund 5.92%
27Four Shari’ah Active Equity Prescient Fund 5.64%
Allan Gray SA Equity Fund 5.61%
Satrix Rafi 40 ETF 5.54%
Satrix Rafi 40 Index Fund 5.52%
Foord Equity Fund 5.52%
Sanlam Private Wealth Equity Fund 5.49%
Old Mutual Rafi 40 Index Fund 5.42%
Prudential SA Equity Fund 5.35%

Source: Morningstar (as at 31/12/2019)

*The Counterpoint SCI Value Fund sold out of its position in Sasol before 09/03/2020

Given Sasol’s prominence both on the JSE and in the wider emerging market universe, it is also not just local funds that have exposure to the stock. A significant number of international funds hold it in their portfolios.

These include funds from Japan, Namibia, Australia, Hong Kong, Ireland, the UK and the US. 

Looking ahead

The question for investors now is what the outlook for Sasol is from here. If there is a reasonable chance of recovery, it could be a bargain trading on a price-to-earnings (PE) multiple of 6.5 times.

Much of that outlook will depend on the oil price. Brent crude is selling for less than $40 a barrel. Although it has recovered a little since the weekend, some analysts still see potential for it to go lower if the market turmoil persists.

At these levels, oil producers will be taking a lot of pain. As Mark Lacey, Schroders’ head of commodities, noted on Tuesday:

“No part of the oil industry works at $30 a barrel.”

There is, however, still an enormous amount of uncertainty in markets – both around how Saudi Arabia and other oil producers will act over the coming months, and the impacts of the coronavirus. That will depress investor sentiment. The question is whether Sasol is now trading at such low levels that it presents a sufficient margin of safety for long-term investors willing to see out the short-term challenges.

*This article has been corrected to reflect that the Alexander Forbes Investments Equity Fund of Funds and Aluwani Equity Funds had decreased their holdings in Sasol before 31 December 2019.  

Sasol share price over the past year

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COMMENTS   39

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The answer your last question is, hell NO, do not go near it.

I could have done with a bit more notice. You really need to up your game with the predictions.

Colson,

That answer is in relation to investing in SASOL today with a PE of 6.5 going forward. That said, I wouldn’t be in anything that is priced in ZAR or on the JSE for that matter, I may enjoy living here but investing here HELL NO!!!

They might get something for their head office building

I have a theory that one should sell ones shares in a company as soon as one hears that they are building a new head office. Many companies that have built head offices have a poor year the year the office open or the year after the office opens. My logic is that the new head office detracts from management’s attention from running the business and consequently they have a poor year.

DA-CoCT built themselves a fancy, shiny and plush new “Water Affairs” office in Belville, during their 2018 Day Zero Disaster in Cape Town….

Maybe they can buy up Sasol offices, seeing they did such a great job administrating Jo’burg…

Agree

Webber Wentzel nearly tanked when they developed the glitzy ivory tower in Sandton – had it not been for forcing juniors to become partners and cough up money, they would have been history today.

My Grandfather always said – when you see the elegant surroundings when you visit your bank or lawyer or doctor, remember you are paying for it.

mmm see also Massdiscounters (Game/DionWireD) moved to new HQ JHB
u know the rest

Valid points everyone.

To me, when a company builds an outrageously fancy ivory towers as a head office, it’s an indication that they’re now “at the top of the cycle” 😉

Large spends always comes near to top of cycles, when things were going well.

@phil-you must see Shepstone & Wylie palace in Umhlanga for glitz. Like a 6 star hotel with eyewatering charges to match.

In Sandton with a 20% vacancy level. Someone will take a bath.

Counterpoint? Isn’t that Sam Houllie of African Bank fame.

Well, there is a disclaimer: *The Counterpoint SCI Value Fund sold out of its position in Sasol before 09/03/2020

That share deal you did a couple years only favoring one section of the population. How’s that working out for you ?

I also used to be a stern SASOL supporter until they showed their cards as being utter racists…

It doesnt matter that the law of the land implores you to act like this, you be the better entity and tell the racists to spend their stolen tax funds however they want, but private enterprise has a moral backbone…

any examples?

Wonder how many margin calls went out on Monday. I think there are a lot of traders and brokers that are in biiiig trouble.

The question is. Is this the best you can do with your money or are you flipping a coin?

Apparently Aluwani means “prosper”. Wonder how the clients feel….

Why pay a whole management team, plus a board, when the future of the business depends entirely on the actions of a Saudi Prince who does not even own any shares in the company.

The carnage is not restricted to Sasol though. Take a look at the US Frak ETF. That industry is falling off the cliff and it will take some US banks and pension funds with it.

The Saudi prince is on a mission to destroy the US fracking industry, and Sasol is a casualty. When Putin and the Saudis fall out, local pensioners suffer. This is how small the world is.

All this hype about big amounts but it is only figures on paper and not real cash in the bank money. So what is the hype about.?? What is lost except the ego’s of some fund managers.

If that Saudi prince manages to destroy fracking I will gladly take a bath with my Sasol. As a farmer I need clean water for myself and my livestock. So does SA if the want to braai steak or chops.

You can rest assured that fracking in SA is dead in the water. The Sasol share price needs to be above the R600 level before fracking in SA will be economically viable. For fracking to make economic sense in the USA, the price of Brent Crude has to be above the $50 level. They have the rule of law and property rights in the USA, so there is an incentive for landowners to allow fracking. The ANC government nationalised mineral rights, so there is no incentive for local landowners to allow fracking on their land. Therefore, the cost to frack in SA will be a lot higher than in the USA. Local farmers will sabotage production processes, intimidate employees and put sugar in the diesel tanks of fracking operators.

The price of Brent Crude will have to be above $100 before fracking in SA will become economically viable. So, ANC incompetence and criminality basically guarantees us that fracking in SA will never become viable. The ANC is their own biggest enemy and the Karoo farmers’ best friend.

Fracking is in actual fact a very bad on the environment. Too much water being used, chemicals being injected into the ground and way too much damage with potential to pollute the water sources (and in SA, water is scares)
Go green instead of fracking in SA.

Saddam used to sell the oil for $20 a barrel, and it only cost about $4 out of the ground really. You can literally just tap a well in Iraq, and put the darn stuff straight in to your tank. The stuff was reported to be so plentiful, that sheperds were just so annoyed with goats and valuable lifestock falling into these annoying ‘oil’ pits.

So, what is this nonsense that no part of the oil industry works at a $30 a barrel price? Are the prices to be kept artificially high so that the paying public can be bilked in order to keep shale companies, many of whom will end up as zombies if the price deteriorates further towards and below $30. The darn stuff is plentiful, so follow the laws of supply and demand – bring the prices down.

…have read somewhere that the Saudis (and those in Bahrain, etc) are the lowest cost producers….can survive oil price at around mid-$20pb.

*lol* the prospect of owning a Fortuner 4-Litre V6 is tempting…

Argh wat…can just as well keep my (4,8L/100km) Fiat Panda 1,2…and fill up its 30L tank with “loose change” lying around.

The prices are needed to finance the loans made to support build projects in those countries that sell the oil, like Russia, Nigeria, UAE etc. Lower price just means the ROI takes longer and slows doen new build projects. Lower prices could help the global consumption economy to grow faster but will also slow down alternative energy development. The prices were probably high enough to encourage lots of investors to invest into renewable energy. Over the next couple of years oil will have to share the pie as alternatives are gearing up and maturing. Sasol spent loads of money on technology that is slowly being phased out. Who knows? In 10 years from now all new cars sold will be electric or hybrid

The real question is: What was the Sasol weighting in these funds 12 months ago, 6 months ago and then as of 01/03.

12 months ago it had a weighting of 4.5% in the AG balanced fund. As of 01/03 it was 3.2% (this has obviously changed dramatically). Whilst that may not sound huge, keep in mind that 12 months ago this fund was R152bil in size, so it is more the RAND loss which is relevant here.

We all thought the world would end when Steinhoff went belly up. But we survived. I have lost 10% of my money during the last 3 weeks because of Corona. Sasol will recover hopefully. Perhaps it is time to buy?

Maybe I am a lazy reader but, like S/hoff, someone needs to actually analyse SASOL properly. My consistent view, they make most of their loot easily by being a protected monopoly in SA. This led to big heads and egos and the vanity of Lake Charles, thinking a child could play in an adult first world playground, then tried, S/hoff style, to hide their beating. They will recover to some extent, but maybe shouldn’t.

I bought S/hoff (sucker) but not SASOL.

Corporate Capture?

Very convenient that the previous CEO before joining Sasol spent the previous 29 years of his life as an employee of Fluor. The “Overpaid Guys” who designed and built Lake Charles with a fixed price contract?? That overrun by Billions.

They are doing “Swimmingly” have not lost a cent.

Hindsight-based experts out of the woodwork.

I Love it…..I will wait till it Collapses…. R10 is a good buy…. even R5.

I suspect the Game between the Russians and Saudi will play out.
From Game Theory …. the position for Power is crucial….each wants market share.
No one is co-operating at the moment…. Perfect for further drops in the oil price.

By the Way…. why hasnt the price of fuel dropped…. oh yes…. perfect opportunity of our favourite goverment to increase taxes…. Thanks Pravin/Tito … your Champions.

Steinhoff was in a different market and actually it was very difficult to keep track of the wheeling and dealing in many different countries. You may recall that Anglos went from R400 down to R250 and then over the next 18 months went down to R50 before recovering quite spectacularly. I had bought at an average price of R180 and when it recovered to R120 I panicked and sold losing quite a bit if money because certain analysts said we were going into a 9 year commodities bear market. It subsequently touched R380 less than 2 years later and is now still above R310.

I think the JSE should be closed down…. it is a sham…. They call themselves a bourse?

It is a racket. All our investment balls slip through the strings…

…sharing your sentiment.

However, it’s called a BEAR MARKET (pretty much since Zuma’s Nenegate) the past 5 years.

Maybe it’s the COVID-19, Who can tell lately.

With a R45 billion market cap Sasol could be very close to be dropped out of the Top 40. Should that happen the pain is far from over.

If the Saudis (and Russians) keep the oil price low, I fear for Sasol’s future as a listed company (along with American shale gas producers).

Let’s take South Africa back a number of years:

Number of listed companies on JSE in 1993 (after end of apartheid): 305
Then the resources boom followed / effect of sanctions ended.
Number of listed companies on JSE in 2001: 601
Then we have post-Nenegate/Zuma:
Number of listed companies on JSE in 2019: 375
Number of listed companies on JSE in 2020 (Feb): 344

https://www.businessinsider.co.za/companies-listed-on-the-jse-2020-2

Looking ahead

The question for investors now is what the outlook for Sasol is from here. If there is a reasonable chance of recovery, it could be a bargain trading on a price-to-earnings (PE) multiple of 6.5%.

What does this mean in laymans terms?

End of comments.

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