Sasol is making headway in opposition to its challenges


Sasol CEO Fleetwood Grobler reassured shareholders in a presentation of the interim results for the six months to finish December 2020 that Sasol has (finally) turned the nook after years of going through big challenges.

He mentioned Sasol delivered a primary charge efficiency throughout the six months, regardless of unprecedented challenges from the Covid-19 pandemic, low oil costs and extreme hurricanes on the US Gulf Coast.

“We’ve repositioned Sasol as a enterprise for strong, resilient and sustainable efficiency. Sasol 2.zero may be very a lot up and operating,” Grobler advised his viewers when asserting that earnings elevated by greater than 100% to R15.three billion within the first half of the monetary 12 months in comparison with the R4.5 billion within the first half of the earlier monetary 12 months. Headline earnings elevated to almost R11.9 billion (R19.16 per share) in comparison with lower than R3.7 billion or headline earnings per share (EPS) of R5.94 a 12 months in the past.

It seems like Sasol has certainly turned the nook contemplating that it suffered a headline lack of practically R7.9 billion within the monetary 12 months to June 2020.

Market response

Buyers rejoiced after they first noticed the outcomes and the share value jumped round 5% to R212 per share quickly after the discharge of the outcomes.

Sadly, the beneficial properties evaporated over the following few hours when shareholders took time to learn the leads to full, noticing that earnings benefitted from non-cash accounting changes totalling R12.9 billion.

These changes included beneficial properties of R4.6 billion on the interpretation of financial property and liabilities as a consequence of a 15% strengthening of the closing trade charge (the final day of December in comparison with the tip of June 2020), beneficial properties of R5 billion on the valuation of monetary devices and by-product contracts, and a forex achieve of R3.three billion on the finalisation of a three way partnership of a part of the Lake Charles Chemical Undertaking (LCCP).

Nonetheless, the outcomes are good.

Grobler famous that the outcomes had been earned throughout a interval of maximum market volatility by which oil costs collapsed, demand for chemical substances fell, gross sales of gas declined and the rand strengthened in opposition to the greenback.

The figures present that the rand oil value and gross sales volumes had been some 23% decrease throughout the six months beneath evaluation in comparison with the corresponding six months. Sasol was capable of counter the impact of the decline on this all-important matrix for the group by lowering mounted money prices by 10%, limiting the autumn in earnings earlier than curiosity, tax, depreciation and amortisation (Ebitda) to solely 6%.

Stability sheet

At this stage, the general efficiency of Sasol – by way of the profitability of its operations and the restructuring of the group – may be measured by its steadiness sheet. Each Grobler and group monetary director Paul Victor talked about that the steadiness sheet seems a lot more healthy.

“Though our money flows had been impacted by low crude oil costs, softer chemical costs, plant downtime and the results of Covid-19, our money conservation initiative and asset divestment programme enabled us to repay roughly $2 billion [R28 billion] of our debt. As well as, we repaid our rand banking amenities of roughly R4 billion.

“Internet debt to Ebitda declined to 2.6 occasions, snug throughout the debt covenant of 4 occasions,” mentioned Grobler.

The steadiness sheet exhibits that web debt declined by R70 billion within the final six months, from R274.6 billion on the finish of June 2020 to R204.1 billion on the finish of December.

As well as, administration reassured shareholders that the promoting of non-core and fewer worthwhile property is progressing as deliberate, reiterating that asset gross sales amounting to between $three.three billion and $three.eight billion might be accomplished earlier than December this 12 months.

Thus Grobler introduced that Sasol is not going to want to return to the marketplace for extra capital.

A rights difficulty of a number of billion rand was nonetheless a risk only some months in the past.

Administration’s overview of some key elements serves as an excellent indicator of what traders can anticipate of Sasol going ahead.

Grobler mentioned money mounted value financial savings of R3.2 billion had been delivered within the interval beneath evaluation and that there’s potential for extra value financial savings. “This was largely attributable to the implementation of our complete response plan specializing in money mounted value discount and enhanced money circulate.”

He once more referred to Sasol’s objective of positioning the group as a worthwhile enterprise in a low-oil-price atmosphere, as he has been doing since taking on as CEO.

That Sasol produced a strong revenue and optimistic money circulate throughout a tough interval amid low oil costs exhibits that the objective has been achieved.

Oil value

Victor highlighted that the oil value averaged lower than $44 per barrel throughout the six months to December, in comparison with $64 per barrel throughout the first half of the earlier monetary 12 months.

Regardless of a mean weaker trade charge of above R16 per greenback, the rand oil value was some 23% decrease, whereas refining margins had been an enormous 41% decrease.

Victor warns of continued volatility in oil costs, the trade charge and chemical costs for the remainder of the 12 months. He forecasts a variety for the oil value of between $40 and $60 per barrel and sees the rand pretty robust at between R14.50 and R15.50 per greenback.

Chemical compounds

Grobler assured traders that demand for chemical substances is recovering, with costs displaying indicators of enchancment.

Victor mentioned administration is anticipating a slight restoration in ethane costs (down 24% in comparison with a 12 months in the past) and continued energy within the value of polyethylene.

Grobler additionally shared the excellent news that the LCCP is absolutely operational and the build-up to full manufacturing ranges – interrupted by not one, however two hurricanes – is on monitor.

Dividends

However nonetheless no dividends. Grobler mentioned Sasol continues to be cautious and can rethink dividends later.

Shareholders can hope that the oil value stays at present ranges of above $60 per barrel, that demand for chemical substances continues to extend, and that the necessity for jet gas recovers from the devastation of Covid-19.

As for the share value, the large headline lack of the earlier 12 months makes the calculation of a historic price-earnings (PE) ratio nonsensical.

Assuming that Sasol delivers the identical headline EPS within the second half of the 12 months would point out a ahead PE of 5 occasions. This means some warning on the a part of traders, contemplating that Sasol has been sitting on a PE of round eight occasions throughout the previous couple of years.


Delivered to you by Sasol.