Our opinion on the current state of SOL

Sasol, a global powerhouse in the chemicals and energy sector, traces its origins to the oil-from-coal technology developed during South Africa's apartheid era. Approximately 50% of its profits are directly tied to the oil price, with significant growth ventures including its 50% ownership in the Lake Charles Chemical Project (LCCP) ethane cracker plant in Louisiana, USA, and the development of gas resources in Mozambique. Sasol's expansion in Mozambique is marked by the acquisition of two new licenses for gas exploration, potentially augmenting its gas projects in the Rovuma province.

However, Sasol faces considerable environmental scrutiny as South Africa and the Johannesburg Stock Exchange's (JSE) largest producer of greenhouse gases. It is identified among the top 100 fossil-fuel entities globally, contributing to over 70% of worldwide greenhouse gas emissions, placing it under international pressure to address its carbon footprint effectively.

For the fiscal year ending 30th June 2023, Sasol reported a turnover increase to R289.7 billion from R272.7 billion the previous year, with headline earnings per share (HEPS) rising by 13% and net asset value (NAV) by 4%. The company noted constraints on profitability due to the high brent crude oil prices, a weaker rand/US dollar exchange rate, challenges in South African mining operations, and reduced margins in American and Eurasian segments amid unfavorable market conditions.

In a six-month production and sales update to 31st December 2023, Sasol reported a 6% increase in mining production and a 10% rise in gas production from Mozambique. Fuel production saw an 8% uplift. However, the chemicals business experienced declines in sales revenue across various regions, with South Africa down 18%, America 19%, and Eurasia 26%, attributed to volatile economic conditions, weaker oil and petrochemical prices, unstable product demand, and ongoing inflationary pressures.

A trading statement for the six months to 31st December 2023 projected a significant drop in HEPS, estimated between 28% and 42% lower than the previous period, primarily due to the decline in oil and chemical prices. Despite a strong recovery post-COVID-19, Sasol's share performance has been dampened by these recent results. Although the share initially benefited from a spike in Brent oil prices, which reached around $127 per barrel, prices have since receded to below $82.

Sasol remains a high-risk, volatile commodity share, intricately linked to global oil prices and market dynamics. The company's commitment to reducing its carbon footprint is evidenced by securing 550MW of renewable energy, aligning with its goals to lower carbon emissions.