Sasol shares fall on profit warning

Sasol’s share price dropped 8% on Friday as the market braces for poor annual results from the chemical and synthetic fuels group. In a trading statement on Friday, Sasol said its headline earnings per share for the financial year ending in June 2020 are expected to decrease by at least 20% compared with the R30.72 reported for the 2019 financial year. Earnings per share are also expected to decrease by at least 20%.

Sasol’s share price fell 8% on Friday as the market braces for poor results from the chemical and synthetic fuels group.

In a trading statement on Friday, Sasol said its headline earnings per share for the year ending June 2020 are expected to fall by at least 20% compared to the R30.72 reported for the 2019 financial year. Earnings per share are also expected to drop by at least 20%. The share price, which has fallen by almost three-quarters so far in 2020, closed at R77.38 on Friday.

Sasol produces fuel from coal, and oil prices have plummeted in 2020 due to a price war between Russia and Saudi Arabia and falling demand due to the Covid-19 outbreak.

Cost overruns at the group’s Lake Charles project in the US and an explosion at that facility earlier in the year have put pressure on the group, which is slashing costs and disposing of assets to pay down its debt.

Abdul Davids, head of research at Kagiso Asset Management, expects “quite a messy result, and variables like the oil price and rand exchange rate on June 30 will have a big bearing on the actual numbers.

“As it stands we expect Sasol to report a loss for the year — so a bigger decline than 20%.”

Zaid Paruk, portfolio manager at Aeon Asset Management, agreed that oil and the rand will have a material effect on the balance sheet as inventory may need to be written down.

Paruk says the group’s debt needs to be marked to market, so “the stronger rand may actually help them, but this is a moving target anyway until some asset disposals have happened”.

Wade Napier, analyst at Avior Capital Markets, agreed that the trading update was wholly expected given that the first half of the 2020 financial year saw Sasol report a 74% year-on-year decline in headline earnings per share and now the drastic deterioration in global energy and chemicals in the second half.