Financial Mail

SASO L Lukewarm reception


Wayne McCurrie is a lucky man. He was one of the few portfolio managers who correctly called the top of the oil price at around US$110/barrel in June last year. “I was just lucky. Luck is the big part of investing,” says the Momentum Wealth Management portfolio manager.

Not many fund managers were that fortunate. Sasol is the second-worst performing stock in the JSE all share index for the six months since July, according to data provided by Bloomberg. It has dropped 42% to the current R380/share since the June year high of R652,99.

McCurrie cleaned Sasol stock out of all of his funds around the R600/share level. “That’s when the oil price started falling,” says McCurrie. Sasol’s fortunes are for the most part linked directly to the commodity’s price as it derives most of its revenue by converting natural gas and coal into vehicle fuel.

Every $1/bbl change in the annual average Brent crude oil price will affect Sasol’s operating profit by about $70m (about R816m) this year, according to company estimates. Similarly, a 10c change in the average dollar exchange rate against the rand will affect the company’s operating profit by about R857m. The rand has depreciate­d nearly 12% against the dollar since July.

The stock has followed the oil price south. But despite its recent losses, Sasol is still the JSE’s 10th-largest counter by market capitalisa­tion, and thus is usually one of the few anchor investment­s in many portfolios.

The charmed McCurrie is one of those who caught the correct side of the price movements. “At these levels, around the R400/share mark, I’m building up a stake in Sasol again,” says McCurrie. While “not buying [back] everything I sold” McCurrie says he believes clients with a high risk tolerance can build up Sasol to between 4% and 10% of their general equity portfolios. “It should be in the top five of such [equity fund] portfolios.”

It would be brave to buy Sasol at these levels, with so many unknowns regarding the price of oil, says Sasha Naryshkine, a portfolio manager at Vestact, however. “There’s a good chance the dividend could be cut between 30% and 40% this year,” says Naryshkine. That is because Sasol needs to conserve its cash holdings resulting from the low energy prices in order to fund its $8,1bn ethane cracker investment in Louisiana in the US.

Vestact generally advises its clients to “hold” their Sasol stocks. “That’s because it’s a big company and many people have always held it,” says Naryshkine. He’s quick to add, though, that companies like Sasol have lived through oil prices ebbs and flows before. “And when oil becomes cheaper, consumers tend to behave like it will always be low, so they start driving more, which has the effect of inflating the price again.”

Other funds are also not keen on the stock. Fazila Manjoo, a portfolio manager of the Prescient Equity Active Quant Fund, says the Cape-based manager has gone underweigh­t in the stock. “Its weighting is just 3% of

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