Sasol

Share price: R500 

Net shares in issue: 610,7 million

Market cap: R305,5 billion

Forward PE F2018: 12,1x

Forward dividend yield: 2,6%

Fair value and target price: maintained at R450 

Trading Buy and Portfolio Buy (recommendation of selling rallies into strength remains)

In trading SOL, the following points are salient. I’ll issue a formal update in due course once I’ve had time to revise the model.

Sasol issued both a trading statement and production for Q4.

The key for F2019 is where Brent averages as spot EPS is way above what they will report in F2018. EPS for F2018 at spot rates is around R58,00 (that is 60% higher than what they will report) whilst F2020 spot EPS is approximately R75,00.  

The underlying EPS result is not out of line with my thinking. In my last note on 5 June (“Forward spot EPS surges”) I said that I anticipate earnings per share of R35,00 for the year ended 30 June 2018, much in line with F2017. Core HEPS is flagged to come in between R34,17 and R38,01, which is R36,09 at the mid-point. No surprises there.

EBITDA is expected to be up around 11% at the mid-point of guidance. Depreciation at R16 billion is the same as F2017. Higher interest paid and the share-based payment charges will dilute the bottom line.

Brent averages $63,62/bbl versus $49,77/bbl with the currency $12,85/$ versus $13,61.

Sasol put in $2 billion in currency hedges for F2019 with an average of R13,14/$.

There are some operational issues but nothing of concern.

Sasol will take further impairments with R3,7 billion on Chlor and R1,2 billion on the Mozambican PSA.

On Lake Charles, the project is supposedly within the revised budget and timing, but we’ll only know the final figure once it is up and running. I don’t see LCCP being a material negative on the stock. Budget is $11,1 billion. Engineering and procurement is substantially complete and construction is 68% completed at the end of June 2018. Expect first production Q1 of F2019.

As mentioned, the share price has not proportionately matched the big differential between what Sasol will actually earn and what spot earnings could be if the oil price prevailed for a full financial year. But, SOL has been moving in tandem with these pricing developments but struggling to break out much beyond R500. There are doubts as to the sustainability of crude oil much beyond $75/bbl.     

I maintain fair value and target price of up to R450 and recommend selling rallies into strength.

Mark N Ingham