Chemicals and energy group Sasol has flagged a decline in headline earnings for its half year to end-December, weighed down by accounting adjustments, such as for its hedges, as well as coal challenges in SA.
Headline earnings per share (HEPS) are expected to be 16% to 26% lower to end-December, the energy group said in an update on Tuesday, even as higher oil and chemical prices helped to lift profit margins.
Core HEPS is expected to rise by as much as 191% from the previous period’s R7.93, however, a measure Sasol says better reflect its underlying financial performance.
This measure excludes items including earnings losses of capital projects still ramping up, empowerment transactions, as well losses or gains for hedges and other financial instruments that limit the risk of volatility in oil and currency markets.
Sasol, valued at R218.2bn on the JSE, has been a beneficiary of surging energy prices in recent months, driven by a recovery in demand as the global economy recovers from Covid-19, but described its half-year performance as “mixed”.
Higher prices have been offset by lower production in SA, and the group has been struggling with the quality of coal available for its synthetic fuel operations in Mpumalanga.
In 2021 the group experienced operational incidents at its coal mines, including a fire at its Shondoni mine, as well as a high-wall failure at its Syferfontein mine, both of which had no fatalities. An underground water reservoir incident at its Bosjesspruit mine resulted in three deaths.
Wet weather, including the heaviest rains in Mpumalanga in almost two decades in November, disrupted coal supply from the group’s commercial supplier, Sasol said.
“Sasol has benefited from the recent surge in the Rand oil price. This may have disguised the true operational nature of the results,” said Zaid Paruk, a portfolio manager and analyst at Aeon Investment Management.
However, he said, the latest trading results were largely in line with analysts’ expectations and there could be additional analyst upgrades as a result of the persistent high oil price, at least in the near term. “This bodes well for Sasol short term earnings expectations.”
In a market update published in December, Sasol indicated that its forecast production volumes for its Secunda coal mining operations had been revised to between to 6.7-million and 6.8-million tonnes, down from a previous forecast of between 7.3-million and 7.4-million tonnes.
The company also forecast a 10% decline in fuel production from its earlier outlook.
The outlook for annual fuels volumes had been revised from 51-million to 53-million barrels, compared with the previous forecast of 57-million to 58-million barrels.
In morning trade, Sasol’s shares were 0.43% lower at R341.95, having risen more than 30% so far in 2022.
Update: February 8 2022
This article has been updated with share price information.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.