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Sasol keeps hurting investors, but management remains positive

Lake Charles is starting to produce cash, right now.
CEO Fleetwood Grobler says the Lake Charles project will contribute up to $100m in the current six months and up to $750m in the next financial year. Image: Moneyweb

It must have stung like Mercurochrome in a fresh wound to check Sasol’s share price after the chemical group announced its interim results on Monday.

The share price fell to less than R200 within minutes of the market opening – a level last seen in 2005. The new annual low is 60% down on its 12-month high of R490.

Jordan Weir, equities trader at Citadel Wealth Management, says it’s not hard to see why. “While somewhat expected, Sasol’s interim results were disappointing, owing to a perfect storm created by the combination of a slowing macroeconomic environment, delays and cost overruns at the Lake Charles Chemicals Project [LCCP], and the extensive reshuffling of its management team.

Tough conditions

Poor results were further exacerbated by a 9% decrease in the price of Brent crude oil in rand terms, which negatively impacted on earnings,” says Weir.

Sasol warned shareholders a few weeks ago that earnings for the first six months of its financial year would be between 68% and 78% lower than the corresponding period in 2018. The actual figures show a decrease of 73%. Earnings fell to R4.5 billion in the half-year to December 2019 (2018: R15.9 billion). Basic earnings per share (EPS) fell to R6.56.

Results for the six months to December (Rm)

  Dec 2019 Dec 2018 Change
Mining 1 374 2 661 -48%
Exploration & Production International 1 023 764 34%
Performance chemicals 1 294 3 599 -64%
Base chemicals -1 488 3 076 -148%
Energy 6 743 9 565 -30%
Group functions 907 1 126 -19%
Earnings before interest and tax 9 853 20 791 -53%
Earnings 4 506 15 902 -72%
Basic EPS R6.56 R23.92 -73%

Source: Sasol interim results

The results show that just about all the divisions within Sasol struggled during the last six months. The segmental analysis shows percentage decreases in earnings before interest, taxes, depreciation, and amortisation (Ebitda) of between 30% and 64% and that the big base chemicals segment posted a loss of R1.5 billion, compared with a profit of more than R3 billion a year ago.

Volatility and uncertainty

In a fairly short presentation to investors and fund managers, CEO Fleetwood Grobler said the first half of the financial year was characterised by volatile macroeconomic factors, as well as an uncertain global political environment that affected demand for products.

“Financial results were impacted mostly by a weak macroeconomic environment, which resulted in lower margins, and the LCCP being in a ramp-up phase,” he said, mostly repeating the message from six months ago when discussing the final results for the 2019 financial year.

He added that oil prices were 12% lower, the prices of base chemicals were 15% lower and those of performance chemicals were 14% lower between the comparable reporting periods.

Chief financial officer Paul Victor added that higher production volumes did not make up for the lower prices and losses from the LCCP.

Sasol attributed losses of R2.8 billion in the production of base and performance chemicals at LCCP, as sales income is still lagging cost due to the accounting of all operational costs while the project is ramping up to full production capacity.

LCCP on track

Grobler also repeated his message that the huge LCCP is on track and within the revised total cost estimates, and that it will make a positive contribution to Ebitda in the second half of the financial year.

LCCP will reach what Sasol refers to as the “cash inflection point” in the current six months. This refers to the point where the project starts delivering the big bucks, covers its costs, and starts paying back debt.

The balance sheet indicates that LCCP being able to start helping with the debt burden won’t come a day too soon. Total debt increased to nearly R258 billion at the end of December 2019 (2018: R230 billion).

Grobler says LCCP will contribute between $50 million and $100 million to operational earnings in the current six months and between $600 million and $750 million in the next financial year. He should have translated it to rands – R9 billion to R11.2 billion – to give shareholders a bit of courage.

Shareholders hit

We’re talking about a lot of people when mentioning Sasol shareholders. The 631 million shares are still found in most portfolios – ranging from pension funds and unit trusts to private portfolios.

In aggregate, shareholders lost more than R250 billion in value when the share price slumped from its high of close to R600 during last year to less than R200 per share during Monday.

“LCCP remains critical for Sasol,” says Grobler, adding that production at the huge new plant has reached more than 80% of its design capacity and that the construction work is now 98.4% complete.

Sasol is looking ahead, addressing short-term challenges to restore stability and becoming fit for the future.

Grobler ended the results presentation with a simple plan:

  • Ramp-up of production at LCCP and its contribution to Ebitda (which is set to transform the portfolio);
  • Deleverage the balance sheet and protect Sasol’s investment rating;
  • Preserve asset integrity to deliver safe and reliable operations; and
  • Build resilience for the future.

Christiaan Bothma, an investment analyst at Sanlam Private Wealth, says the striking feature of the results is that the market’s concerns about the balance sheet and near-term liquidity were probably overdone.

“Sasol is at the point now that LCCP starts producing cash, which will go towards reducing debt.

“In addition, Sasol secured $1.25 billion in liquidity for the next 18 months and debt covenants were renegotiated until the end of the financial year.”

Sasol’s figures show that the net debt to Ebitda ratio of 2.9 times is well within the higher debt covenant of 3.5 times agreed to by its creditors, and in fact below the previous limit of three times. Management also pointed out that more than 25% the announced asset sales of $2 billion will be completed by June.

Bothma says that even if investors think that spending so much capital on the Lake Charles project was a bad decision and destroyed a tremendous amount of value, the share offers investment potential.

“A new investor is not paying for the company’s past mistakes at the current share price, nor [are they] paying for the increased cash flow that will come from the project.”


Buy low, they say …





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To find Sasol shares this cheap, you have to go a long way back – back to 2003 to 2005. I can’t remember a time such a high quality company had contributed to such a decimation of its own share through a series of acts, that led act after act to such a destruction of shareholder value – unwitting or otherwise. But rather than complain, I say if you have time and money on your hands, break the piggy bank and take Sasol at the offer for Manna from heaven. You will be glad you did once Lake Charles starts to fire on all cylinders.

Ha se ha ngata monyetla o tjena o hlahang, ke ka hona ke reng, ha o le motho ya ratang ho tsetela dikaroloaneng, tsena tsa Sasol Nakong e tlang di tlo tla nya matsete – ha ke bone mokgoa o mong o di ka etsang ka ona!

Agree you will never see Sasol at this price again, reminds me of De Beers in 1987 at R25. A year later R125.

At the bell yesterday dome one bought 500000 Sasol at R207, bargain.

I agree PWGG, proper value opportunity. Lake Charles will come right, this is no Enron

When Steinhoff dropped to 4000c an acquaintance of mine decided to load up because it was a bargain.

He still has them couldn’t bear to part with them. I pointed out the benefit of a capital gains loss, a 18% recovery on the purchase price.

He wasn’t amused.

At R159 a share….must be a bargain now?

Well why be patriotic? you can just as well look at XOM, BP, Shell..

So for the 6 months in which the share price nose dives and the divi goes to zero, management still earned R800mill via share based payments. Guess I would also be positive.

To add insult everything gets blamed on the global environment, management is in fact doing a superb job. Considering the lack of accountability in SA these days we should consider changing the national anthem to Shaggy’s It Wasn’t Me.

Well something different from general cheap petrochemical options on the stock exchanges world wide..

SASOL’s unique process: This result in it being the single biggest CO2 producer in the Southern Hemisphere, if the greens get their way and tax on CO2 gets tough SASOL will have nowhere to hide…

Is Lake Charles even viable at the current oil prices?

Ever notice how management teams never blame the oil price or demand for great performance?

Its connected to world markets.

Try getting onto the SASOL supplier database. It’s impossible. The gatekeeping that takes place is reminiscent of the Apartheid days of old and the cosy overcharging for services must be horrendous.

I agree. I actually wonder if they open for business?

I worked for a major manufacturer in the Oil and Gas industry who supplied most of the oil majors across the globe and had incredible certifications and accreditation’s.

Sasol was closed for for business when applying to get onto their approved accredited manufacturers list.

“Reminiscent of the Apartheid days of old’ sounds unfair because fortunately I became familiar with many people who were on the Sasol supply side. I was surprised that they had that many small ordinary businesses owned by Mom’s and Pops that were supplying them and they were even helping to incubate them (if that is the right word) to ensure that quality product and services were delivered on time. They have a company that has been operation for years, and they have to be ‘selective’ and have stringent procedures to ensure they remain successful. My anecdotal experience with the few small companies that worked with them were very satisfied with the usual complaints of how margins could be better, but that is normal in business.

Well some of those “moms and pops” suppliers did buy from us. So there was a mark up and Sasol paid a premium.

Manufacturer to end user is cheapest route. Surely that’s what shareholders want in a supply chain?

No company is too big to fail just give it the right management.

It HAD the right management to fail, now it has the correct management.

And still not a word of an impending class action Lawsuit in the USA. !!! I deem this to be reckless by management !!!!!

Not sure why everyone is signing the same phrase that this is a “bargain and you should buy now”. As a current shareholder, it is a disaster.
Actually, if you look at the habit among South African companies (management) they get away with so much corruption and NO accountability & no consequences being applied. I wonder what an example we set for the world or how the world view what “type of management South Africa breeds”??? Look at MTN, EOH, Steinhoff, SAA, Transnet, Eskom…..& government is even worse….the list goes on and on, with very few true success stories. One has to wonder what the universities are teaching the students?
Anyway, it is a disgrace that SASOL is getting so much “credit” and management is still there!!!

It is like a second hand cars salesman telling you, this is the best car money can buy…so cheap now, buy now, you will not regret this buy.
Well, to lose 51% of your money as a shareholder in 5years with SASOL and then being told management is great, bargain stock, sounds like the same song they played 1year ago.
But that is not the worst yet- what about the class action law suit that was filed in the US a couple of days ago?

Downward spiral – Sasol has been lurching for a while. Fool me once shame on you, fool me twice shame on me. For all the Bulls out there, good luck. I see too much arrogance and BS over too long a time to jump into this ‘deal’ of a low share price. Maybe I’m right, maybe I’m wrong. Let’s see where this company is 5 years hence.

Sasol is like our economy – it is going to get worse before it gets better. Brent Crude is heading for $30. This will put further pressure on Sasol. We may see Sasol at R100 soon. The question is – will it offer any value at R100?

If you quote a prediction of price you should be required divulge your methodology for such prediction. Airy fairy is hardly substance.
To me this looks interesting:

Time will tell. I stake all my capital on my “airy fairy” predictions. I put my money where my mouth is. If i am wrong, i will pay the price. Many traders are short Sasol. I cannot claim the rights to the bearish call.

Crude oil is in a bull cycle. The cycle has ups and downs. 3 ups and 2 downs. Up, down, up, down, up. The first down is nearing the end. The upturn will be several years duration.
Sasol is oversold. Like everything else that has been mismanaged. All such scenarios benefit from a focus upon meritocracy at board level first, then cascaded throughout. No corner for deadwood.

End of comments.





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