Despite a major rebound in Sasol’s earnings and a near halving of the synthetic fuel and chemical producer’s debt, the market was unconvinced by annual results as the group’s share price closed 5% lower on the day.
On Monday, the group reported a resurgence in headline earnings per share of R39.53, against a loss of R11.50 in 2020. Sasol also slashed its debt to R102.9bn from R189.7bn.
“Financial year ’21 has all the hallmarks of a watershed year for Sasol, underpinned by a strong overall business and operational performance,” said Sasol CEO Fleetwood Grobler.
“Over the 12 months, we endured significant headwinds, with key standouts being a prolonged pandemic, which is still with us, and a record-breaking hurricane season in the US. Against this backdrop, and given where we were a mere 12 months ago, our performance is nothing short of outstanding.”
But the market appeared to be less than impressed. Sasol’s share price closed lower at R206.64 on Monday — its biggest one-day fall in a month — wiping R6.8bn off the company’s value.
Sasol’s stock value, however, is 64% stronger in the year to date, coming off from an incredibly difficult period for the company, Amid ultra-low oil and chemical prices caused by the Covid-19 pandemic in early 2020, the company cut costs and sold assets in a bid to bring down its R190bn debt pile and avert a rights issue, which it successfully did.
Before the pandemic the group’s balance sheet was already stretched due to major cost overruns at the Lake Charles Chemicals Project, which had also weighed heavily on its share price. A portion of the project has since been sold off as part of the asset sales programme.
Asief Mohamed, chief investment officer at Aeon Investment Management, said Monday’s market reaction was probably due to Sasol’s results coming in marginally below expectations. “The recent lower oil price and Chinese economic growth below expectations are also weighing on the Sasol share price,” he said. Sasol’s larger-than-expected debt reduction and improved balance sheet bode well for the company, should the rand oil price fall further, he said.
A raft of questions about shareholder returns during Sasol’s investor call on Monday signalled disappointment over the board’s decision to not declare an annual dividend amid ongoing risk tied to macroeconomic uncertainty.
Sasol CFO Paul Victor told Business Day the company had clearly communicated to investors that, in lieu of a rights issue, it would take the group a bit longer to bring its debt balance down to a desired “trigger level”, the thresholds for which will soon be agreed to and communicated to investors.
“It’s always better not to pay a dividend as opposed to issue equity,” Victor said. “But I do feel that, with the trajectory that we are following, a dividend is not so far in the distant future, in terms of reintroducing it.”
International investors also remain concerned about the lack of a firm plan for Sasol to address its carbon emissions, Mohamed said.
The group, which produces fuel from coal using its proprietary Fischer—Tropsch process, is the second-largest emitter of carbon in SA, and its Secunda synfuels facility has been pinpointed as the largest single-source emissions point in the world.
As global pressure rises to curb its emissions, Sasol has committed to adopting an emissions reduction plan.
“This promised plan by Sasol is long overdue and may or may not result in a rerating of the Sasol share price,” Mohamed said.
With a synthetic fuel business dependent on coal, and its gas feedstock from Mozambique dwindling, it will be challenging for Sasol to put a credible emissions reduction plan together that does not affect on the group’s profitability.
On Monday, Grobler said a plan would be presented on September 22.
“Looking ahead to next month at our capital markets day, you can expect to hear from us on topics that will cover our resilient and focused strategy to deliver value; a significant step up in our greenhouse gas emission reduction targets; clarity on delivery pathways and how we will leverage Sasol’s competitive strings and embed our shareholder value proposition, as well as customer-focused solutions for a sustainable world.”
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