Sasol on track for solid year

• Petrochemical group benefits from rise in average Brent crude oil price

Sasol seemed to be on track for a strong 2018 financial year, analysts said on Tuesday after the petrochemicals group said first-half earnings could rise 17%. Headline earnings per share for the six months to end-December were expected to increase 12% to 17% from a year before. Adjusting for nonrecurring items, headline earnings per share were likely to rise 1%-6%.

Sasol seemed on track for a strong 2018 financial year, analysts said on Tuesday after the petrochemicals group said firsthalf earnings could rise 17%.

The company said headline earnings per share for the six months to December were expected to be 12%-17% higher than the previous year’s.

Adjusting for non-recurring items, headline earnings per share would be likely to rise between 1% and 6%, the company said.

Sasol benefited from a 19% increase in the average price of Brent crude oil, although this was partially offset by the firming rand.

Earnings guidance “was better than we expected – mainly due to the higher average oil price”, said Abdul Davids, portfolio manager at Kagiso Asset Management.

“Performance chemical prices increased substantially in the last quarter and this will boost Sasol’s earnings quite materially, despite lower production volumes in performance chemicals,” Davids said.

Hanré Rossouw, portfolio manager at Investec Asset Management, said Sasol “seems to be on track for a solid year”.

With the rand-denominated oil price having rallied to R846 a barrel, “there should be strong momentum going into the second half”.

Rossouw said the market would now shift its focus to the 2019 and 2020 financial years, when Sasol’s Lake Charles project in the US — which should “give a further rerating to the share price” — started contributing to earnings.

Sasol’s share price has been dented by delays and budget overruns on the Lake Charles project and by a shutdown caused by Hurricane Harvey.

The stock has fallen from above R630 in mid-2014 to R437.50 at the close on Tuesday, a 0.4% decline on the day.

Sasol said it was making “steady progress” on its facility in Lake Charles, having spent $8.8bn on it by the end of December. The project was 81% complete.

The group said that total expenditure was not likely to exceed its previous guidance of $11.1bn and that tax reforms in the US “will have a positive impact on the returns of the asset”. Rossouw said he thought the market “finally starting to get some comfort that they are delivering on those revised budgets and timelines” in Lake Charles.

“The market should start seeing more value in Sasol through this project.” Rossouw said the risks facing Sasol balanced each other out since some analysts believed the oil price was too strong while the same could be said for the rand.

“There’s potential for Opec [ Organization of the Petroleum Exporting Countries] to relax their quotas and for shale gas to make a comeback, but I’m a little bit sceptical about that – we’ve seen US rigs flatten out and I think Opec will remain disciplined,” he said.

Taking into account the risks to the rand, including the possibility of a sovereign credit rating downgrade, Rossouw said: “On balance I think we’re probably at the right rand oil price.”