Fast For­ward

Finweek English Edition - - INSIGHT - Garth The­unis­sen

the weak­en­ing rand, while the out­look for car sales from the likes of Im­pe­rial and Bid­vest means lo­cal petrol de­mand is likely to rise over time.

“A weaker rand is fun­da­men­tally good for Sa­sol be­cause its prod­uct is sold rel­a­tive to global oil prices, which are priced in dol­lars, yet its costs are priced in rand,” says Tshikhudo. “The only over­hang is that it’s spend­ing a lot of money on projects that will only be­gin to reap prof­its in five or six years’ time. How­ever, if the oil price re­mains high, it’ll make a lot of money off of those projects.”

That sug­gests Sa­sol is a risky in­vest­ment if the oil price drops off as it could sig­nif­i­cantly im­pact its cash flows in the short term thereby ham­per­ing its abil­ity re­pay debt. That’s not to be un­der­es­ti­mated given that the com­pany said in Septem­ber last year that it plans to is­sue its first dol­lar-de­nom­i­nated bonds to help fund the US projects.

Tshikhudo says that if Sa­sol can’t gen­er­ate the cash to re­pay debt, it would need to “come to mar­ket” or in other words, do a rights is­sue and di­lute the ex­ist­ing value of its stock. If one is pre­pared to weather that risk and take a long-term view on Sa­sol, then it ’s hard not to ar­gue that be­ing in a po­si­tion to sell fuel in a gas- guz­zling econ­omy like the US can’t be bad thing over time.

At R397/share Sa­sol i sn’t ex­actly cheap on an ab­so­lute ba­sis but on an earn­ings mul­ti­ple of 9.38 at the time of writ­ing, it ’s cer­tainly more eco­nom­i­cal than some other coun­ters on the JSE. It’s also still way off the R506.50 that the share traded at just prior to the ad­vent of the 2008 fi­nan­cial cri­sis. While those may have been heady eco­nomic times, it does give some in­di­ca­tion of how much room Sa­sol has to run should the global eco­nomic re­cov­ery achieve a more sus­tain­able foot­ing.

More­over, with the rand hov­er­ing near multi-year lows, Sa­sol could be the ideal hedge against lo­cal cur­rency risk.

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