Sasol is ‘cheap’ – analysts
STAGNANT: DESPITE FEW IMPROVEMENTS, IT REMAINS WHERE IT WAS 10 YEARS AGO
Some pundits see the share running to above R500, others say it might first flirt with R150.
After decades of diversification, huge investment and building state-of-the-art chemical plants, Sasol is still where it was 10 years ago. Exchange rates and oil prices still determine its fortunes as more than 90% of earnings still come from the South African energy businesses, mainly synthetic fuels.
The stock attracted a lot of attention on the Johannesburg Stock Exchange (JSE) last week, with JSE data vendors flagging that investors were watching the share price and reading up on its prospects.
While most analysts say that Sasol offers value at the current price of below R180, a few remain sceptical and relate the bane of value investors: “Buy them low and sell them lower.”
Sasol fell 47% from its high of R320 at the beginning of 2023 to a low of barely R170, before staging a slight recovery to R177. The share price represents a price-earnings ratio of only 3.3 times and offers a dividend yield of 10%. Fund managers are happy to stay invested and collect the 10% yield every year, with the hope of a rerating of the share on some good news.
Concerns
There are some concerns. Sasol is suffering an onslaught from environmentalists. Its last AGM was disrupted when protesters stormed management and prevented the conclusion of legal governance requirements.
Sasol announced that a new AGM will be held on Friday on a virtual platform to prevent a repeat of the chaos – the idea being that people who want to proceed with the business at hand can mute the protesters if their only aim is to disrupt the meeting.
What the analysts are saying
Analysts are singing from the same hymn sheet, saying that Sasol is cheap but also outlining its problems. Seleho Tsatsi, investment analyst at Anchor Capital, says the recent fall in the share price follows another downgrade of Sasol.
“The sell-off in the share price on Wednesday [10 January] appears to have been triggered by a downgrade in earnings expectations from a prominent sellside house. The share’s forward earnings multiple has contracted significantly over the past year or so,” Tsatsi added, saying the share is cheap – but with reason.
“A few factors have driven this. Firstly, the oil price has come under pressure. Secondly, there has been pressure in the chemicals market, which will be challenging for the company’s chemicals business. Finally, investors may perhaps be cautious around short-term earnings given the continued threat of a looming global recession,” he said.
Casparus Treurnicht, analyst at Gryphon Asset Management, said the downgrade by JP Morgan last week to underweight caught investors off guard.
This is the second downgrade in a few months. In September last year, JP Morgan changed its view from a buy to neutral.
“It seems to believe the problems in the sector are larger and wider than people might think,” he said. “World economic growth is decelerating. It is the hangover from the end of quantitative easing and the effect of higher interest rates working through the global economy.”