Chemicals and energy group Sasol expects to return to profitability in the year to end-June, boosted by a recovery in chemicals prices and higher oil prices in rand terms.
The oil market is in better shape due to higher demand as the world economy recovers from the Covid-19 pandemic and its associated lockdowns. The price of Brent crude has risen 52% in the past year, according to Infront data.
In a trading update on Friday, Sasol said headline earnings per share were expected to be between R39 and R41 in the year to end-June, swinging from a headline loss of R11.50 a year ago.
Sasol hit a soft patch at the start of the Covid-19 pandemic when oil prices crashed due to a slump in demand as global economies shut down to control the spread of the virus. At the time, the group was saddled with a huge debt burden that raised the prospects of a potential rights issue. This added to the pressure on its share price, which hit a record low of R21 in March 2020.
But the company has recovered significantly since then, having undertaken self-help measures that have stabilised the business, which has a rich SA heritage spanning more than 70 years.
It has been pursuing asset sales, including half of its stake in its Lake Charles project in the US, the construction of which suffered a number of setbacks and cost overruns, leading to the departure of Sasol’s former co-CEOs in 2019.
CEO Fleetwood Grobler is overseeing the Sasol 2.0 initiative — a new operating model that aims to cushion the company against the vagaries of the oil market, which is highly cyclical.
With the group slashing costs and selling off prized assets in a bid to bring down debt, together with cash conservation measures, it managed to stave off the potential $2bn rights issue, allowing a dramatic recovery in its share price.
Abdul Davids, head of research at Kagiso Asset Management, said Friday’s update was better than expected, mainly due to a stronger-than-expected recovery in energy and chemical prices. However, “it is unclear from the trading statement whether there was a substantial improvement in costs but Sasol flagged the gain on [oil] hedges as a positive contributor to earnings”, he said.
Zaid Paruk, portfolio manager at Aeon Investment Management, said: “It does appear that due to better price drivers, the business is on a more firm footing and at these levels presents an upside opportunity to investors.”
Sasol’s shares closed 1.15% higher at R221.01 on the JSE on Friday, having risen 950% from their 2020 low.
In Friday’s update Sasol said adjusted earnings before interest, tax, depreciation and amortisation are expected to increase by 32%-49% year on year to R46bn-R52bn. Apart from higher chemical prices, a 4% increase in the rand price of Brent crude oil provided a boost.
With Lisa Steyn
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