Sasol untainted by earnings outlook
Petrochemicals giant saved blushes by hopes on R150bn US project
● Despite Sasol’s expected decline in headline earnings, its numbers were in line with market forecasts and the underlying performance of the business was good, analysts said.
On Friday the group said it expected a drop in its core headline earnings per share of between 1% and 11% or 46c to R4.30 per share in its financial year to end-June 2018.
In the last financial year earnings per share were R38.47. Earnings before interest, tax, depreciation and amortisation were expected to be up by between 6% and 16%, it said.
The petrochemicals company said its negative guidance was because of several unplanned Eskom electricity supply interruptions and two internal outtages at its Secunda Synfuels operation, which led to lower production volumes. However, the group managed to deliver a strong operational performance in the second half of the year through “focused interventions and management actions”, it said.
Sasol said the strong rand/dollar exchange rate resulted in a much lower operating profit and earnings per share for the financial year because it had the advantage of selling its products in dollars while its operational costs were in rand terms.
Despite the rand strengthening earlier in the year, to date it has weakened 3%.
Argon Asset Managers analyst Mark Ansley said the market was not concerned much by the earnings numbers because Sasol had done all its oil and currency hedging. The concern was rather whether the $11-billion (about R150-billion) Lake Charles ethane cracker project in the US was on schedule to deliver.
Sasol had decided to hedge for oil and currency due to its capital expenditure on Lake Charles and to cushion itself against a drop in oil prices. It had now completed its hedging programme for the 2018 and 2019 financial years and was “well positioned to steer through these periods of volatility”, it said.
The Louisiana-based project is expected to start generating earnings from next year.
“If Lake Charles is delayed then it delays the kick-in of earnings but they are so close to the end I don’t think they will miss budget and so I don’t envisage much delay,” Ansley said.
Sasol said it had also incurred one-off impairments and write-downs for the year, such as R1.5-billion of employee share-based payment expenses, and scrapped the US gas-toliquids project amounting to R1.1-billion. But Ansley said that did not mean it would not have any other one-off payments in the next year because it has a tax issue in court.
The company said its liquid fuel sales volumes were down 2% due to a challenging South African retail liquid fuels market. Brent crude oil was currently trading at $72 a barrel and has increased by 42% in the last year. However, the oil price is not a concern for it because it still had another year of its oil hedges.
“The company becomes less reliant on oil because when the cracker plant comes on stream Sasol will get chemicals exposure . . . oil gets diluted in importance [for] the group,” Ansley said. Sasol’s share price reacted positively on Friday, rising 2% to close at R503.