Sasol
“Spot 2020 EPS edges closer to R100”
Share price: R575
Net shares in issue: 612,2 million
Market cap: R352 billion
Fair value and target price: maintained at R450 due to sensitivity to oil and currency variables
Trading Buy and Portfolio Buy (recommendation of selling rallies into strength remains)
I am looking at crazy numbers now for Sasol spot earnings with the rand having gone to R15.20/$ and with Brent crude at $79/bbl. With these two variables having been Sasol earnings positive for some time now, the price of SOL is going to remain elevated above what a through the cycle view would price it at.
I am looking at crazy numbers now for Sasol spot earnings with the rand having gone to R15.20/$ and with Brent crude at $79/bbl. With these two variables having been Sasol earnings positive for some time now, the price of SOL is going to remain elevated above what a through the cycle view would price it at.
We are now two months in to Sasol’s 2019 financial year. If oil stays at current levels until December then close to $75/bbl could be the average for the 2019 financial year.
At $79/bbl and with the rand at R15.20/$, then spot EPS for Sasol in F2019 is R66 per share rather than R50 per share in the base case scenario. For F2018, Brent averaged $63.62/bbl and the rand R12.85/$. EPS came in at R36.03.
For F2020, with Brent at $79/bbl and with the rand at R15.20/$, EPS climbs to R98 per share.
The longer oil remains above $70/bbl region and the rand stays roughly where it is, then EPS is going to higher than R60 per share this financial year.
Assuming this stronger for longer oil scenario plays out, with the rand on the back foot, the share price is likely to find a firm base at around the R525 to R550 region rather than R500 or below.
But I still hold to selling the rallies, no matter how small, as SOL is very sensitive to these external variables and a pull back on oil and ZAR would have a disproportionate effect on the share price. This is a good trading stock in any event, helped by the solid business fundamentals and the likelihood of strong cash flows, at an opportune time as debt to equity peaks.
Mark N Ingham
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