Who dares wins if you pinpoint Sasol’s nadir
Be fearful when others are greedy, and greedy when others are fearful” is the advice of Warren Buffett, one of the world’s most successful investors. Given the carnage in the markets, opportunistic investors could take their pick of any number of stocks.
On the JSE, none has taken as much of a hit as Sasol, which has lost more than 85% of its market value in the past month and will now implement measures to raise cash and pay down debt. The market is fearful of Sasol, so could it be time to pile in?
While a perfect storm of factors has hit Sasol, its continued problem is an enormous trust deficit after the disastrous Lake Charles project where, despite a number of assurances from management, cost overruns and delays destroyed the goodwill of investors. Quite simply, the market is loath to believe that Sasol will do what it says it will.
In a plan to steady the ship, Sasol is seemingly confident that it can save $2bn in costs and generate at least another $2bn in asset sales. But analysts are sceptical the money can be raised from sales in a distressed environment. If a minimum of $2bn is not raised through the sales, the size of the rights offer could increase. More worrying than that, if Sasol demonstrates enough progress on asset disposals, the banks which will underwrite the equity raise could withdraw their support.
Very little is certain in this environment and those brave souls who dare to call the bottom of the Sasol rout will no doubt deserve their winnings.
BRIMSTONE
There were only two questions posed to directors of enduring empowerment company Brimstone at a results presentation on Thursday.
One was — predictably around the effects of the Covid19 pandemic on its mainstay food investments in Sea Harvest and Oceana. The other question was a request for an updated intrinsic net asset value (iNAV),
— which is understandable considering the ructions since the close of Brimstone’s reporting period at end-December.
Directors said they were precluded from giving an estimate — though with the bulk of Brimstone’s portfolio already listed on the JSE, a rough calculation is not impossible. For the record, an official quarterly iNAV will be posted on the group’s website at the end of March.
As things stand, Brimstone can be thankful for the value of its anchor assets Sea Harvest and Oceana only dipping by 15% since the end of 2019.
Unfortunately, the smaller components of Brimstone’s portfolio have been mercilessly battered. Private education group Stadio has lost 60% so far this year, property group Equites around 32%, Grindrod 30.8% and MultiChoice (where Brimstone is mainly invested via the Phuthuma Nathi empowerment scheme) down more than 29%.
While the portfolio’s gross value has diminished over the past two-and-a-half months, the level of borrowings at centre probably hasn’t shifted. Debt was reflected as R3.8bn at year end, excluding nearly R1bn of ring-fenced debt associated with the Grindrod BEE scheme.
If times were better, Brimstone, which has already opted for a scrip dividend instead of a cash payout, might be mulling offloading smaller investments. For now, directors will be hoping its larger investments, especially Sea Harvest and Oceana, can keep churning cash flows that underpin decent dividends.