Will we or won’t we?
Synfuels giant could lose its place in the Top 10
IT’S 11:00 ON
Tuesday, 23 January 2007. Sasol is trading at R229,35 on the JSE. Exactly a year ago, also at 11:00, it was trading at ... wait for it ... R229,35. Exactly the same.
I’ve just received a call from a reader who wants to know whether it’s a good time to buy Sasol. My reply? I don’t know. However, I phoned around and asked a few friends in the asset management and broking industry and their replies were virtually unanimous: We don’t know.
But there were a few brave souls with recommendations: yes, now’s the right time to buy.
But – and this is a big but – somewhere in the future, perhaps even within the next year, you’ll have to sell the share again. The oil price could fall sharply, that’s why. I don’t like that. It means two decisions: first, when to buy and, second, when to sell.
Alan Greenspan, the well-known former chairman of the US Federal Reserve, once said they hadn’t yet been able to find a model that was more accurate and reliable in predicting the direction of the exchange rate of the US dollar than flipping a coin. The same goes for shares.
Just buy a share that offers so much value when you buy it that it will never be necessary to sell it. That’s the advice of Warren Buffett, the world’s most successful investor. What he’s actually saying is that you must try to postpone the second decision. Then you won’t need to flip that coin.
Let’s turn the clock back one year. What would the reply to the same question have been a year ago? I assume the unanimous reply would have been: Buy. In January 2006, the oil price stood at US$61/barrel and you needed just more than R6 to buy a US dollar (see table). The price of crude oil in SA was therefore around R367/barrel. In January 2006, almost everyone predicted that the price of crude would rise to even as much as $100/barrel and the popular view has always been that the rand would weaken.
On Tuesday, oil was trading at $51/barrel and the exchange rate was US$1/R7,15. The rand price for a barrel of oil on Tuesday was R364, for all practical purposes virtually the same as a year ago. So it’s no surprise that Sasol’s price is still R229 and it’s probably also no surprise that the strong buying recommendations of a year ago are now a more modest “I don’t know”.
Between 23 January 2006 and the same day this year, the price of the Satrix 40 increased from 1 695c to 2 269c – an improvement of 33%. Is it a good time to buy Satrix 40 now? My reply again: I don’t know. But with one major difference. Go ahead and buy Satrix 40, because it won’t ever be necessary to sell them again.
There will be price fluctuations, but the second flip of the coin will be eliminated – and that’s the sort of investment the oldtimers are looking for.
The table also tells a story of June 2003. That’s more or less the date when the first analysts noticed that something was happening in the SA economy that we hadn’t experienced before.
Since that date, the price of Satrix 40 has increased by 180% and Sasol, just a shade behind it, by 170%. The rand price of crude oil only increased by 60% over the same period.
Sceptics may wonder whether Sasol’s share price hasn’t already used up all its opportunities. In other words: Is Sasol’s current share price not already discounting all the good things that could still happen with the company?
Let’s put the question again: Is Sasol a good buy now at R229?
I don’t know – but I don’t think so.