Sasol shares plunged nearly 12% on Friday, wiping out more than R6bn in value after JPMorgan downgraded the group from neutral to underweight, citing concerns about the energy and chemicals company’s performance.
One of the concerns the US financial services firm raised about Sasol was the strengthening rand, saying this would be a growing headwind for its earnings, given the group’s substantial exposure to foreign-currency revenues.
The petrochemical group generates significant foreign currency revenues from its global chemical and energy operations, primarily priced in dollars.
The effect of this is that a weaker rand boosts rand-denominated profits, while a stronger rand lowers earnings despite strong sales volumes.
The rand has strengthened nearly 13% against the dollar over the past year. Sasol’s share price has weakened more than 65% in the past three years.
The downgrade comes as investors grow increasingly bearish on Sasol. Morgan Stanley in September downgraded Sasol from overweight to equal weight, while Bank of America Securities cut its rating to neutral from buy.
Credit ratings agency Moody’s Ratings last year also revised Sasol’s outlook to negative from stable, citing continued deterioration in the group’s operating performance due to weak demand dynamics in the chemicals market and low oil prices.
S&P in October revised its outlook on Sasol from stable to negative, reflecting its expectation that Sasol’s core earnings and credit metrics will remain weak in fiscal years 2026 and 2027 due to persistently low oil and chemical prices.
Sasol’s share price staged a recovery last year after the company outlined its new growth strategy at its capital markets day in May.
The group set out a three-year growth plan focused on cutting costs and reducing debt to restore its capacity to resume dividend payments.
The new strategy is grounded in strengthening and growing the group, an anchor company in South Africa’s economy and indispensable to a town such as Sasolburg.
The growth blueprint includes upping its production of fuel from coal while expanding its green energy business.
Sasol has slashed the budget for its greenhouse gas emission reduction roadmap by 70% and now plans to spend no more than R7bn on the initiative. It believes it will still be able to reduce its global greenhouse gas emission footprint by 30% come 2030.
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