Our opinion on the current state of SOL

Sasol (SOL) is a massive international chemicals and energy company which has its roots in the oil-from-coal technology developed during the apartheid era in South Africa. About 50% of the company's profits are directly linked to the oil price. It has two main growth areas - its 50% stake in an ethane cracker plant in Louisiana, America, known as "Lake Charles Chemical Project" (LCCP), and its development of gas resources in Mozambique. Sasol was awarded two new licences in Mozambique to explore for gas in an onshore development of approximately three thousand square kilometres. This could significantly add to its existing gas projects in the Rovuma province. One area of concern for Sasol is that it is the biggest producer of greenhouse gases in South Africa and on the JSE. It is listed as one of the 100 fossil-fuel companies world-wide that contribute to more than 70% of Greenhouse gases. The company remains under international pressure to deal with its carbon emissions effectively. In its results for the year to 30th June 2023 the company reported turnover of R289,7bn compared to R272,7bn in the previous year. Headline earnings per share (HEPS) was up 13% and the company's net asset value (NAV) increased by 4%. The company said, "Despite benefitting from the elevated brent crude oil price and a weaker rand/US$ exchange rate, our profitability for the year was constrained. Challenges in our South African mining operations and reduced margins in our American and Eurasian segments, driven by unfavourable market conditions, impacted our financial results". In a production and sales update on the six months to 31st December 2023 the company reported mining production up 6% and gas production (from Mocambique) up 10%. SO fuel production was up 8%. Sales revenue from the chemicals business was 18% lower in South Africa and 19% lower in America while sales from Eurasia dropped by 26%. The company said, "The H1 FY24 performance continued to be impacted by a volatile macro-economic environment, with weaker oil and petrochemical prices, unstable product demand and continued inflationary pressure. Persistent underperformance of state-owned enterprises in South Africa remains a concern, as does the outlook for weaker global growth. Pricing pressure continues to impact sales volumes, margins and resultant profitability". Since the impact of COVID-19, the share was making a dramatic recovery which has been brought to an end by the latest results. Obviously, the share initially benefited from Brent oil prices which rose to a high of around $127 per barrel but then fell back to below $82. Oil prices are now rising again. Sasol remains a volatile commodity share and hence risky. The company says that it has now sourced 550mw of renewable energy - which takes it closer to its carbon emissions goals. On 12th July 2023 the company announced that its application to be exempt from the sulphur dioxide emissions rules at its Secunda plant had been rejected. This could have a major impact on the company's long-term viability. On 13th November 2023 the company announced that its chairperson, Sipho Nkosi, resigned with effect from 10th November 2023.