Our opinion on the current state of SOL

Sasol, a behemoth in the international chemicals and energy sector, traces its origins to the oil-from-coal technology developed during South Africa's apartheid era. With approximately 50% of its profits tied directly to oil prices, Sasol's performance is closely linked to the volatile energy market. The company has strategically positioned itself for growth through two primary initiatives: its 50% investment in the ethane cracker plant in Louisiana, known as the "Lake Charles Chemical Project" (LCCP), and the expansion of its gas projects in Mozambique. The awarding of two new licenses for gas exploration in an onshore area of about three thousand square kilometers in Mozambique highlights its potential to significantly boost its existing operations in the Rovuma province.

However, Sasol faces significant environmental scrutiny. It is the largest producer of greenhouse gases in South Africa and is listed among the top 100 fossil-fuel companies globally contributing to over 70% of greenhouse gas emissions. This has placed Sasol under considerable international pressure to effectively manage its carbon footprint.

The COVID-19 pandemic initially led to a dramatic recovery in Sasol's share price, but the resurgence was short-lived due to declining commodity prices, particularly oil. For the six months ending on 31st December 2023, Sasol reported a decrease in revenue to R136.3bn from R149.8bn in the previous period, attributing the downturn to lower chemical prices and weak oil prices. The company's headline earnings per share (HEPS) and net asset value (NAV) also saw declines of 34% and 2%, respectively.

Sasol's first half of 2024 continued to be marred by a challenging macroeconomic environment, characterized by weaker oil and petrochemical prices, fluctuating product demand, and rising inflation. Operational improvements in South Africa were overshadowed by the persistent underperformance of state-owned enterprises involved in Sasol's value chain, compounded by a weaker global growth outlook, adversely affecting business performance.

On a positive note, on 7th April 2024, Sasol announced that the Minister of the Environment, Barbara Creecy, had upheld its appeal against a decision by the national air quality officer, a ruling that could have jeopardized the operation of its Secunda oil-from-coal plant. This decision comes as a relief for Sasol's operations, albeit temporarily alleviating some regulatory pressures.

Sasol's stock initially benefited from a spike in Brent oil prices to around $127 per barrel, although prices have since receded to about $90, reflecting the inherent volatility and risk associated with commodity shares. In its pursuit of environmental stewardship, Sasol has made a notable stride by securing 550mw of renewable energy, marking progress toward achieving its carbon emission reduction goals. This move signifies Sasol's commitment to transitioning towards more sustainable energy sources amidst the evolving energy landscape and regulatory pressures.