Tension in the Middle East sent Sasol shares soaring more than 10% on Friday as investors bet on the petrochemical giant’s fortunes improving after a jump in the oil price.
Sasol ended the day 10.89% higher at R96.56, its biggest one-day leap since early March 2021.
The gains came as Brent crude prices jumped as much as 13% early on Friday after Israel launched extensive air strikes on more than 100 Iranian nuclear and missile sites, including the Natanz enrichment facility.
These strikes targeted Iranian nuclear infrastructure and military leadership, resulting in the deaths of senior commanders and scientists. Israel described the attacks as a pre-emptive move to prevent Iran from developing nuclear weapons, while Iran condemned the strikes and vowed retaliation.
The military escalation has heightened fears of a wider Middle East conflict, driving a sharp increase in oil prices amid concern over potential supply disruptions, given the region’s critical role in global oil production and export routes such as the Strait of Hormuz.
MyWealth Investments CEO Annatjie van Rooyen said about
one-third of global oil supplies are transported via the Strait of Hormuz, and Iran had repeatedly threatened to close the route in the event of an attack.
“The surge in oil prices could be a boon for Sasol. Higher oil prices generally improve Sasol’s profit margins by increasing the value of its energy and chemical products,” Van Rooyen said.
“Sasol’s earnings are highly geared to the oil price and the rand exchange rate; a weak rand and higher oil prices are positive for the company’s earnings.”
Sasol has faced headwinds in recent months, driven by weaker fuel prices and sales volumes that led to a 31% decline in interim headline earnings per share earlier this year.
On May 30, Moody’s Ratings downgraded Sasol’s credit outlook to negative from stable, citing deteriorating operating performance driven by weak demand in the chemicals market and sustained low oil prices.
The agency expects Sasol’s adjusted leverage to rise to 3 times earnings before interest, tax, depreciation and amortisation (ebitda) in 2025 and 2026, up from 2.2 times in 2024, reflecting ongoing margin pressure and asset impairments.
Moody’s also projects Sasol’s ebitda margin will fall to about 20% over the next two years, from 22.5% in 2024 and 25% in 2023.
A stronger share price may help Sasol manage its debt profile and refinancing costs amid a challenging market environment.
Looking ahead, Van Rooyen said she was optimistic about Sasol’s prospects. “The company is in the process of streamlining the business, reducing debt, and looking at the possibility of unbundling the international business,” she said.
“Operational stability is improving locally, and this uptick in the oil price and the weaker currency bodes very well for Sasol’s earnings.”
She said at these levels, “it still offers good value”.
Van Rooyen also placed Sasol’s share price rally in the context of broader commodity market trends: “We have recently witnessed how gold stocks started performing as gold acted as a safe haven. Then, the platinum price started increasing on a number of factors, including safe-haven diversification and a new platinum exchange in China that is driving demand for the metal. Oil seems to be the next best thing.
“Normally, the oil price follows gold and other commodity prices when they start increasing,” she said.
Long-time investors in Sasol have certainly been on quite a ride over the years. After peaking at R645 in 2014, the share price fell gradually over the next few years until the Covid-19 pandemic hit, briefly sending the share price to as low as R27.
It managed to grapple all the way back to R438 just before Russia’s invasion of Ukraine, but has been on a steady decline since, reaching a trough of R53 earlier this year.
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