Will we or won’t we?

Syn­fu­els gi­ant could lose its place in the Top 10

Finweek English Edition - - Creating wealth - BY VIC DE KLERK vicd@fin­week.co.za

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.


Source: I-Net Bridge



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